Stocks Tank On Tepid Jobs Report; Euro Plunges To A New Multi-Year Low!


Friday, June 4, 2010
Stock Market Commentary:

It was another volatile week on Wall Street as investors digested a questionable follow-through day (FTD), a very weak jobs report, and saw the euro plunge to a fresh multi-year low! On Friday, volume totals easily topped Thursday’s levels on both major exchanges much indicated heavy distributional pressure from the institutional crowd. Decliners trumped advancers by a 7-to-1 ratio on the NYSE and by more than an 8-to-1 ratio on the Nasdaq exchange. There were only 6 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, much lower than the 28 issues that appeared on the prior session. New 52-week lower outnumbered new 52-week highs on the NYSE and the Nasdaq exchange.

Tuesday & Wednesday’s Action- Questionable FTD Emerges:

The US stock market was closed on Monday in observance of Memorial Day. Stocks fell on Tuesday after BP Amoco PLC (BP) said that they were not able to stop the leak in the Gulf of Mexico. BP gapped down on monstrous volume and hit a fresh one-year low after news spread that the earliest they will be able to plug the leak will be August. In other news, the ISM manufacturing index topped estimates and the euro plunged to a fresh 2010 low which reiterated fears that the ongoing contagion woes may worsen.

On Wednesday, the major averages surged but volume, a critical component of institutional sponsorship, was mixed. Volume was significantly lighter than the prior session on the NYSE and edged higher on the Nasdaq exchange. The higher volume on the Nasdaq exchange, coupled with the strong gain, was enough for the paper to say the Nasdaq confirmed its latest rally attempt and produced a FTD. However, the Dow Jones Industrial Average and the S&P 500 have yet to follow-through which is a clear negative divergence.

Elsewhere, the Japanese Prime Minister Yukio Hatoyama resigned from office ahead of the forthcoming election. His surprise resignation sent the yen plunging against 15 major currencies. In the US, pending home sales jumped to their highest level since October as buyers took advantage of the now expired tax credit. Bank of America’s (BAC) Chief Executive Officer, Brian Moynihan, reassured investors when he said that he sees “more than hopeful signs” on loan demand. Billionaire investor, Warren Buffett, spent part of his day testifying before the Financial Crisis Inquiry Committee (FCIC) and defended the credit agencies.

Thursday & Friday’s Action- Stocks Get Smacked On A Tepid Jobs Report:

Stocks edged higher on Thursday as investors digested mixed economic data: Retail sales lagged, weekly jobless claims slid, and the ISM service index rose. The Labor Department said jobless claims fell by -10,000 to 453,000 last week and the ADP Employer Services report, based on private-sector payrolls, rose by +55,000 jobs. The ADP reading fell short of the Street’s +70,000 estimate. Meanwhile, the Institute for Supply Management’s index of non-manufacturing businesses, which currently comprises approximately +90% of the economy, held steady at 55.4 for a third month. Stocks got smacked on Friday after the Labor Department said jobs rose by +431,000 last month which was the highest monthly gain since March 2000. However, +411,000 of those jobs were from the government hiring temporary workers for the 2010 census. That left a very small increase from the private sector which bodes poorly for the economic recovery. It is important to note that the March 2000 reading was also inflated due to census hiring.

Market Action- Confirmed Rally But Exercise Caution:

The author of “How To Make Money In Stocks”, the book that explains the fact-based investment system, has observed in the past that a market should not be considered to be in “healthy” shape unless at least 2 of the 3 major averages are trading above their rising 200-day moving average (DMA) lines. At this point, all the major averages closed below that important level which is not a “healthy” sign. In addition, the market is currently under severe selling pressure and the fact that the euro hit a new multi year low bodes very poorly for equities. Sometimes patience (or caution) is the better part of valor. Trade Accordingly.  

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