Diary of a Financier

Jobs Data Schizophrenia

In Capital Markets, Economics on Sat 9 Jul 2011 at 00:24

After an massive up day then a massive down day, we end this week right back where we were on Wednesday’s close. (No need to panic.) I’m still medium-term bullish; I’m also maintaining my short-term bearishness.

I think neither the jobs data nor the jerk-around market action warrant a change in that outlook. The fundamentals are still the same, as are my technicals.

The “jobs number” (non-farm payrolls) this morning was a huge whiff: 18k new jobs v. 90k expected. I’ve covered the recent weakness in the employment market, especially the uptick in mass layoffs at financial services businesses. None of it is good, but it is after all part of that “increase margins then build inventories” cycle that corporate America has utilized since 2009. Capital markets pricing so persistently at these highs makes me think that the economy is adjusting to its new habitat. High unemployment and low capacity utilization can endure for quite long when coupled with the government’s liquidity. I had an unproud thought today that corporations could actually persist like this, growing profits meagerly without growing revenues. Certain of the unemployed (particularly those whose benefits are dropping off) will be left behind in the doldrums of a bifurcated economy; others will pick up new jobs as corporations adjust to the new normal and profit growth steadily warrants it.

Nonetheless, I can see the S&P 500 (SPX) reflexively sliding for days/weeks off this short-term high, particularly because the straight rally since June 24 strikes me as short-covering after the ECB managed to defer a Greek crisis. Traders were long/hedged volatility in protection against a panic. As those positions have been closed, I expect SPX will slide down to 1305, hopefully holding 1300 before resuming its hike. I’d worry if that support were broken, because the Head & Shoulders at 1345 would be substantiated. That classical pattern resembles an analogue from 12/12/07, which I’ve passed off as meaningless since the longer-term fractals of today’s SPX aren’t nearly as overbought.

–Romeo

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  1. […] SPY also closed tonight slightly below that historical prime meridian around $130.86, leaving the Head & Shoulders neckline around $126 as the ultimate support. Although, I’m likely to cover part of my short at $129.50 […]

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