Sunday, October 10, 2010

Itz Pix Weekend Review

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The NonFarm Payrolls showed a headline loss of -95,000 jobs when almost everyone was expecting a minor gain. This was the largest loss of jobs in three months. July and August were revised lower by a total of 15,000 jobs. But the real jobs number that Itz tracks is the U-6 total employment noted on Itz Twitter update following the BLS release...

U6 -employment 17.1% in Sept up from Aug. 16.7% NOT GOOD AM Oct 8th via web

The unemployment rate was unchanged at 9.6% but the U6 unemployment rose to 17.1% and the highest since last December. The U6 number includes those without jobs and those who are working part time to pay the bills while searching for a job in their field. That means engineers, accountants and bankers are waiting tables or stocking shelves at Wal-Mart until a job appears. Instead of employment improving it is still getting worse. Those out of work for more than six months were 41.7% of the total. Those out of work for less than a month rose to 19.1% and again that trend is moving in the wrong direction.
Seeing a job loss number in the headlines is depressing to consumer sentiment as well as investor sentiment and dims corporate expansion plans. Corporations, like individuals want to see several months of improvement before they take on new obligations. For a corporation to add a $50,000 per year salaried employee it costs them over $90,000 in salary, taxes and benefits. Once the government health care program kicks in that number will be over $100,000 per year. Corporations are thinking hard before they add employees in this environment.

Itz had stated last weekend that the Jobs Report was the pivotal catalyst for the week. The markets churned as it decided what the numbers meant. On one hand investors were concerned that weaker than expected job creation meant the economy was barely crawling forward and there was still risk of continued economic weakness. On the other hand the weak jobs seemed to indicate the Fed would step up plans for a new round of quantitative easing (QE). That would mean a lower dollar and higher stocks . But as the old adage says.... "don't fight the Fed" so traders bought the dip and the market moved higher.
The markets will get some further insight to the Fed this Tuesday,with the FOMC minutes of the meeting that suggested a new quantitative easing program may be headed our way. Those minutes will be decisive.

The Dow Jones broke the 11,000 barrier again...for the umpteenth time, the next level that will truly give this momentum rally another leg up is 11,200. While 10,900 will be near term support. The S&P closed at 1165, Itz has targeted 1225 by year end, which is the completion to the Inverse Head & Shoulders pattern. The week will see hundred of companies reporting Q3 earnings, like Intel, GE, JP Morgan and Google. There are 35% of the S&P 500 stocks trading at or near a new 52-week high. There were 41 S&P stocks that made new highs on Friday.
This market rally in stocks and commodities has been driven by the currency race to devalue and one needs to be cautious that things can just as easily reverse and change momentum to the downside. The dollar is deeply oversold, Itz has 76 as a downside target support. In the Itz Pix the ProShares Ultra Crude Oil etf UCO hit $11 and Itz suggested taking 1/2 the position off the table. Can oil trend higher? Perhaps again watch the Canadian as well as the US dollar, but things are over extended and we could see oil trend lower, after all the is an abundant supply globally.
Bottom line overall Itz remains cautiously optimistic, but with a finger on the sell button.

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