It's 'Game Back On' After Jobs ReportApril 9, 2012 @ 8:28 AM EST
Good Morning. The stock market has been largely a one-way street for the better part of the last four months. As we've mentioned a time or two, the impetus for the surprisingly strong market performance has been the correspondingly surprising strong economic performance of the U.S. and economy. And because of the mostly better-than-expected economic data, traders have been able to brush aside the difficulties facing Europe and the less than inspiring economic data out of China.
The bulls contend that since the U.S. is the world's biggest economy, as long as the good 'ol USofA is surprising to the upside then stocks can continue to march merrily higher - regardless of whether or not the Bernanke Bunch is going to provide another fix of QE.
However, those seeing the glass as at least half-empty, who have been on the sidelines of the game for what seems like an eternity, suggest that Friday's Nonfarm Payroll report means that it's "game back on" for them. In short, the jobs report was significantly weaker than even the most bearish of forecasts. Thus, the bears are contending there is now a gaping hole in the bull thesis.
To be fair, the most recent economic data in the U.S. hasn't been all that stellar. And some analysts have gone so far as to suggest that the economic recovery may actually be losing steam at this point in time. Thus, the bear team appears to be chomping at the bit now that they have a chance to strut their stuff for a while.
Then there's the earnings picture. If you follow such things (and you probably should), you undoubtedly know that the earnings pre-announcement season wasn't great as there were far more downgrades than upgrades to company outlooks. Therefore it doesn't take a degree in applied mathematics to deduce that earnings may not save the bulls' collective hides if the U.S. economy begins to falter even a little.
So far in this morning's analysis it is easy to understand why the bears may be feeling pretty good about their prospects to get back in the game. However, there is one wild card that the bulls may (or may not) be able to play - a little thing called QE3.
Most economists will agree that the U.S. economy is doing just fine, thank you and as such, there is no clear need for the Fed to embark on another round of bond buying. Yet at the same time, it has become quite clear that Ben Bernanke has made it his life's work to ensure that the U.S. economy does not succumb to a deflationary spiral. Because of this there is still a decent chance that Gentle Ben will take action if the economic data weakens further. And every trader on the planet knows what to do if the Fed starts to hint at more economic stimulation - buy 'em!
So, with the futures pointing lower and support zones likely to snap like toothpicks this morning, it appears that is may indeed be "game back on" for the bear camp in the early going. The only question is if the bulls will wind up playing the QE card now (remember, bad news is good news when you are hoping the Fed will step in) or simply stand aside today. So, stick around as this game is about to get interesting.
Turning to this morning... Despite the fact that most major markets around the world are closed for Easter Monday, there is little doubt that stocks will open deeply in the red this morning. The bottom line is the jobs report was shockingly weak and pokes a hole the bulls' thesis for the year.
On the Economic front... There are no major economic reports scheduled for release today.
Thought for the day... "It is not only what we do, but also what we do not do, for which we are accountable." -- Moliere
So, how does this morning's early decline affect our short-term trading strategy? Take a Free Trial of the Short-Term Market Manager (a multi-strategy market timing system that focuses on the 5-15 day time horizon of the market) to find out.
Wishing you green screens and all the best for a great day,
David D. Moenning
Chief Investment Strategist
Positions in stocks mentioned: none
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