Here I Come to Save the Day!

At 8:15am, the ADP payrolls report disappointed. See the red arrow on this chart of the S&P 500 futures (click to enlarge):

The market gapped down at the open and stayed underwater all morning until 11:30am when Barry Ritholtz published my withholding-tax data in “Payroll Withholding Taxes Surge in March” (blue arrow). The market then rallied for 21 straight minutes (blue line), exceeded the ADP level (red line) and finally broke into the green.

Not bad, huh? Is Barry’s blog big enough to move the market like this? On a sleepy day with light volume, I think so.

Note to bulls: I can push your market up into the green, but you can’t expect me to hold it up there all by myself. I am only one man after all.

The improvement in the data crept up steadily throughout the month until it finally amounted to something substantial enough to surprise everybody when they finally saw the total. I think that it is notable that even though this data was shocking enough for a CNN/Money reporter to call me, the market still rolled over as we were talking, and finished down on the day.

Has a potentially very-strong jobs report already been priced into the market by the egregious February-March rally? Maybe so. Don’t forget what happened back here:

I’m thinking that we are set-up for a classic “sell the news” reaction. If it begins to materialize next week, don’t just sit there staring in disbelief.

Note: while I made a mistake in one of the calculations in the post on Barry’s blog, it was in the favor of the bears. In addition to that, I used the raw data to measure the March 2009 to March 2010 growth percentage. And since that does not account for the payroll-tax credit that is still in effect, the real growth percentage is stronger still. So, the data supports job growth in excess of my original 300,000 guesstimate. On Larry Kudlow’s CNBC show tonight, Joe LaVorgna of Deutsche Bank, who has “adopted” my method gave an estimate of 350,000. And still, the futures are lackadaisical as I write this.

Wednesday’s Trading – 3/31/2010

ADP released a disappointing number this morning, and the market looks like it will gap down at the open. The market has been rallying for weeks in anticipation of a strong jobs report Friday morning. And while it will indeed be strong, ADP is saying that it will be all government jobs. If that turns out to be true, I would expect some rather nasty red gashes to appear on the charts. Bulls can send their complaints to the Census Bureau which could have been posting their staffing levels all along, but instead has decided to keep it secret until they hit us with it all at once in the NFP report when the market is closed on Friday. Thanks for nothing Census Bureau!

Nevertheless, keep an eye on Barry Ritholtz’s the Big Picture blog this morning, as he may post a withholding-tax study that I did which should provide some solace to the bulls during this unpleasantness.

Tuesday’s Trading – 3/30/2010

VIX Squeeze Intensifies
The VIX’s Bollinger Bands which I showed on my chart from Sunday squeezed even tighter on Monday. They are only 2.92 points apart now, which is the tightest they have been since June 6, 2007. The next day, June 7, 2007, the SPX dropped 26 points (from 1517 to 1491).

Frack Attack
Natural-gas drillers are trying to head-off expensive and restrictive new federal regulations on their “fracking” methods. This didn’t stop UNG from getting a 6 handle today though.

Monday’s Trading – 3/29/2010

Greek Bond
The Greeks are auctioning off a 7-year bond this morning. According to news reports, it seems to be going well, but the futures are 4 points off their overnight peak.

Question: How many people were living or staying in this house, apartment, or mobile home on April 1, 2010?

Answer: Zero. April 1, 2010 is in the future, and the population of the future is always zero until proven otherwise.

VIX Squeeze

The VIX rallied a bit last week, but not enough to prevent it from inching closer to the Death Cross on the weekly chart. Nevertheless, the Death Cross may have to wait a few weeks because the VIX is now in a “volatility squeeze” – and a rather egregious one at that. Take a look at this daily chart of the VIX (click to enlarge):

In the upper panel is the VIX with Bollinger Bands. Notice how tight the bands are. The blue histogram in the center marked “BBRange” is an indicator that I invented to make it easier to see how tight the Bollinger Bands are. All that it does is plot the difference between the bands. Right now, the bands are 3.20 points apart, which is about as tight as it gets.

In the lower panel is the SPX, and the three purple vertical lines mark the last three times that the VIX squeezed this tight going back to July. In each case, the squeeze presaged a pullback in the SPX.

BBRange hit 3.05 on August 24th, so it would not be unprecedented for the bands to tighten more. And perhaps they will do so as the market holds steady or rallies in anticipation of Friday’s jobs report which will be the first one to show a large number of new jobs.

On the other hand, the market is closed on Friday, so perhaps it will have its sell-the-news reaction prior to the news event.