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.

Census
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.

CNBC: America Doesn’t Need More Jobs

In this video from Friday morning on CNBC, you can see Trish Regan and Jimmy Pethokoukis make the argument that “manufacturing jobs are dumb and the USA doesn’t need them.” At 3:24, you can see Pethokoukis say flat out “we don’t need assembly jobs.”

As the USA continues to enjoy “Depression Style” double-digit unemployment, you might wonder why people on the talking box are trying to tell us that we don’t need any more jobs. The answer is that they are shills for Corporate America which makes large profits in the “exporting jobs” trade.

You may also be wondering how Jimmy Pethokoukis still has a pundit job after writing one of the most idiotic columns in economic history: “Dude, Where’s My Recession?” on April 20, 2008. That’s right; Pethokoukis was mocking the bears on the eve of one of the worst economic collapses in history. The S&P 500 closed at 1388 that day, so if you followed this buffoon’s advice, you would still be deep underwater two years later.

What advice does “Jimmy P” have for us now? He wants unemployed factory workers to go to work writing iPhone apps for IDEO. I’m sure that IDEO is a fine company, but I wonder how many former factory workers they have on their staff?

According to Pethokoukis and Trish Regan, all of our problems would be solved if everybody “would just be smart”. But obviously not everybody is smart. What is the minimum IQ required to work at a company like IDEO? What kind of IQ do you need before embarking upon a career in software development? I don’t know, but I’m guessing >100, which means that half the population, 150 million people, are not qualified.

I’m sure that there are sirens going off at Political Correctness Police headquarters because I mentioned IQ. But guess what? You can try all you want to banish IQ, but it ain’t going away. You are born with an IQ, and it does not change. Deal with it!

The great thing about “dumb manufacturing jobs” is that the most complicated processes, such as building a transmission, can be broken down into steps that anybody can do. In an auto factory, you have very smart engineers working together with less-fortunate people. It’s a beautiful thing: no matter what your IQ is, you can find a niche on the staff.

Note to Detroit: You heard “Jimmy P”. What are you waiting for? Get off your lazy butts and start writing code, curing cancer, and sending a man to Mars! Anybody can do it!

Friday’s Trading – 3/26/2010

SPY, QQQQ, and IWM all printed bearish engulfing candles on their daily charts Thursday. And while its financial components kept the Dow from turning red, the XLF printed a gravestone doji on its chart.

All these bearish sticks don’t mean that you should plunge in short at the open. That would have been suicide on January 19th. Take a look at the January top on the QQQQ. The Q’s printed a bearish engulfing candle on January 15th, but then rallied to a new closing high the next Monday. On Tuesday, it rolled over. The moral of the story is that before the market takes a dive, it likes to do its fiendish best to squeeze out the shorts.

During Thursday’s trading, your hero (that would be me) posted one comment. But it was a doozy, right? At 12:35pm, I warned that the market might be ready to stall out. Look at the red arrow on this 5-minute SPX chart (click to enlarge):

How’s that for timing? Even better – the market was rising at that moment, and I was thinking that it would take a run at 1182, which is the third Fibonacci level in the TARP Box. I could have waited a few more minutes before posting, but I knew that my readers don’t get comments immediately, so I wanted to get it out there as soon as possible. Otherwise, the timing would have been even more awesome. And that’s just the kind-of guy I am; sacrificing my own glory for the sake of my readers.

Thursday’s Trading – 3/25/2010

It appears that Fitch’s downgrade of Portugal yesterday has caused the Germans to crack and abandon their hard-line toward Greece. Futures have broken to a new high in the pre-market, so stocks seem to like this development. However, it is a loss of prestige for the euros since they have abandoned their stringent fiscal policies and gone hat-in-hand to the IMF. The FXE is gapping up this morning, but is still far below the gap-down that it made yesterday.

Wednesday’s Trading – 3/24/2010

While discussing Monday afternoon’s bear raid yesterday, I wrote:

“When I have seen this sort of thing in the past – when it looks like the gorilla got beat – he usually gets his way the next day.”

And even though the market broke to a new rally high, I think the gorilla got his banana, if not that big bunch that he was looking for. Take a look at this 1-minute chart of the NASDAQ-100 futures (NQ) (click to enlarge):

If you look at the volume during the raid (red box), you will see that it was very light. So, it probably didn’t take very much capital to knock the market down to 1946 (green line). The next morning (Tuesday), we got terrible housing news, and the NQ plunged down to 1941. I think the gorilla took that opportunity to cover up, probably with relief. Volume was heavier there, so he may have been able to exit his entire position with a decent profit.

After that, the market rallied the rest of the day with the shorts nowhere in sight. So, the moral of the story is that a light-volume market such as this can be slapped around by large players. But without a strong negative catalyst, it’s hard to keep the market down. The China trade war may prove to be a good catalyst for the bears, but we need to see the big guns fired. That would be something along the lines of the Treasury Department designating China as a “currency manipulator”, Congress passing a tariff bill, etc.

Monday’s Trading – 3/23/2010

While everybody was carrying on about the health-care bill this weekend, I wrote about the China trade war. And sure enough, the Hang Seng made a big gap down when it opened Sunday night. And unlike our market, it did not recover. Colin Twiggs, who picked up on my theme, thinks that the Hang Seng may have plunged because of the intensifying trade war.

And Monday afternoon, the NASDAQ-100’s rally came to a screeching halt when CNBC reported that Google had redirected google.cn to google.hk. Last I checked, Hong Kong was part of China, so this doesn’t seem very eventful to me. But maybe tech stocks took it as a sign that China and Corporate America were not able to play nice any more. (WSJ story here.)

Right around that time on CNBC, Erin Burnett was holding a discussion about the trade war and said that the Chinese were winning because they forced US companies to partner with Chinese companies in order to steal our technology, which they then use to compete against us. It might be nothing, but don’t forget that Burnett is a member of the Council on Foreign Relations.

This may or may not be related but take a look at this chart (click to enlarge):

In the top panel is a 9-minute moving average of the TICK from Monday afternoon. In the lower panel is a 1-minute chart of the NASDAQ-100 futures (NQ). Now look at the red trendlines – the TICK was trending up while the futures were falling, right?

You don’t see that very often. Usually, the arb-bots keep stocks, futures, and options all goose-stepping in the same direction. Sure, that’s the NYSE TICK, and the NASDAQ-100 futures, but the Nicey and the Nazzy TICKs almost always move in the same direction also.

So, I think this was a case of the futures tail trying to wag the stock-market dog. Somebody big was trying to crack the market and trigger a cascade into the close by shorting the NQ and thereby forcing the arb-bots to sell stocks like Apple, Cisco, Google, etc. But whoever that gorilla was, he failed. As you can see from the green line at the bottom of the chart, the NQ held the 1946 level, which had been intra-day support two hours earlier.

However, when I have seen this sort of thing in the past – when it looks like the gorilla got beat – he usually gets his way the next day. And sure enough, as I write this around midnight, the NDX futures are lagging a bit worse than the SPX futures. So maybe he is still at it. Will this short gorilla get his pull-back banana? Film at 9:30am.

The moral of the story is that the China trade war may have legs, and that may be emboldening the shorts, even though they couldn’t close the deal Monday afternoon.

SPY FDI All Up in Your Eye

In Friday morning, I mentioned that SPY’s Fractal Dimension Index was giving an extreme “end of trend” signal. See the blue arrow in the lower-right corner of this chart (click to enlarge):

I also mentioned that it had not been this extreme since 1998. Here is that chart:

Once the market hit the extreme FDI reading (blue arrow and blue vertical line), it went sideways, sold off a bit and didn’t break out of the new range (blue box) until the FDI rolled up to give an “end of range” signal (green arrow).

And bears shouldn’t expect anything more than that right now. This is a very strong bull market and a 5% or so correction should be considered normal rather than the beginning of a new bear. It could be a new bear but there is no technical evidence to support such a development yet.

I also mentioned the FDI on the IWM chart on March 6th. I neglected to mention that the FDI could have gone lower since it was not at an extreme level. And so it did while the IWM moved higher. However, that was only two weeks ago, and my call that “down and sideways are more likely than up” for the IWM in the near future is coming true because the IWM will be back below that point today, and I believe that two weeks qualifies as the “near future” on a daily chart.

A Catalyst for the Bears?

Last week, our public serpents in Congress began talking about taking a bat to China. And look, the talking heads have their bats out:

Trade with China may take center stage once the health-care issue is resolved, and if any changes are made, they won’t likely be bullish for the S&P 500. Whether China is forced to let its currency float up, or tariffs are imposed, multinationals will have to pay more for the products that they import from China. That would squeeze profits.

And both the Democrats and Republicans who are up for re-election in the Fall will become increasingly desperate to “do something” about double-digit unemployment. Note to China: you had better have your batting helmet on.

But it’s not just Congress feeling the pressure. The Obama Administration seems to have indicated that it too is eager to bop China. The President is said to be fed up with the Chinese, and look at this item from AEP’s call to gang-up on China:

“Larry Summers let drop in Davos that free-trade arguments no longer hold when dealing with ‘mercantilist’ powers.”

And Summers got the idea from Paul Krugman, who sez that:

“…global economic growth would be about 1.5 percentage points higher if China stopped restraining its currency.”

And also:

“…we’re looking at 1.4 million U.S. jobs lost due to Chinese mercantilism.”

It looks like there is a grand alliance forming in favor of a trade war on China, does it not?

Of course, CNBC is apoplectic about this. They say that bad things always result from “protectionism.” But what has ten years of wide-open free-trade gotten us? Our stock market topped out 10 years ago, our manufacturing base has been gutted, we are enjoying Depression-style unemployment, and our economy has lost the ability to create jobs. As far as I can tell, the “bad things” have already happened.

Larry Kudlow sez that we shouldn’t “poke our banker in the eye.” But if we had never sent our factories to China, would we need to borrow money from them? What kind of sense does it make to export jobs to China, and then borrow money from the Chinese in order to pay unemployment compensation to all the laid-off workers? You call that an “economic system” Kudlow?

TARP Box Update

On March 10th, I wrote:

“If the market breaks out, and you want to short it, I wouldn’t even entertain the idea until 1170.”

And what happened? The market broke out and printed a double top at 1170. Take that Nostradamus!

But wait! There’s more! Friday’s sell-off ended at 1155.32 which was only 0.20 points shy of the 1155.52 TARP-Box level. Look at the red arrows on this hourly SPX chart marking the double-top at the second level in the TARP Box, and the black arrow marking the bounce at the first level (click to enlarge):

Not bad, huh? I calculated 1155 and 1170 as important levels back on January 9th in the first TARP Box post.

So, that’s how you use these levels: When the market approaches one from either direction, you go on “reversal alert”. If there had been a proper bearish catalyst on Friday afternoon, the SPX could have plunged through 1155. But there wasn’t, and at that moment, this pattern appeared on the SPY 1-minute chart:

That’s a double-bottom on heavy volume, and SPY did indeed rally into the close.

Now that the SPX has broken into the TARP Box, it’s very likely that the TARP Gap up above 1200 will be filled. However, this type of Fibonacci analysis only forecasts levels, not time. The TARP Gap could be filled in a couple of weeks or a couple of months.

And the bears may indeed have a catalyst. Two in fact. If the Democrats succeed in getting their health-care bill passed, traders might take the tax-hike part badly – especially since it may embolden the dems to pass more hikes before they are booted out in November.

After that comes a potentially larger catalyst.

The Great Wall

Here is a picture of my “Great Wall” indicator (click to enlarge):

It uses dozens of internal technical indicators to give a strength reading on the market. The more green there is, the stronger the market is, and vice-versa for red. I coded it to look like this so that I could keep an eye on the overall market with just a quick glance.

The wall was appropriately green for most of Saint Patrick’s Day, but a few red termites started nibbling away at the foundation at about 14:07. They were exterminated, but came back with reinforcements at 14:32 and painted an intra-day double top onto the SPX chart.

There was more red by the close, but it didn’t engulf the whole wall. Maybe the foundation will still be shaky tomorrow, though this indicator is not designed to predict anything.

VIX Death Cross

Lots of people are talking about how low the VIX is and how that is bearish. While that may well prove to be the case in the short run, on a longer time-frame not only can the VIX go lower, but it can stay low for a long time – years in fact.

Are we about to enter a new, low-VIX era? Maybe. On the weekly chart, the VIX is poised to make a “death cross” where the 50-week moving average crosses below the 200-week average (click chart to enlarge):

The top panel shows the VIX in black bars, with the 50-week average in green, and the 200-week average in blue. Notice how, on the right side of the chart, the green line is about to cross the blue line. The last time that happened was in September 2003.

At that time, you could have gotten long the market and gone to sleep for four years as you can see in the lower panel of the chart which shows the weekly S&P 500. As long as you had your alarm clock set for August 2007 and the VIX golden cross, you would have done just fine.

The moral of the story is that if the VIX does indeed make the death cross, it might be a good time for bears to go into hibernation. Also, a low-volatility market should prove less punishing for fledgling day-traders.

Note: The VIX has behaved differently in the past. For example, the VIX rose along with the bull market in the 1990’s.

Update: If you hear people (such as Joe Lavorgna) talking about the VIX Death Cross in the coming days, remember that you heard it here first. In fact, here’s a screen shot of Google listing my site on top for a “vix death cross” search only 22 minutes after I posted the chart:

Hands off my memes Lavorgna!

Monday’s Trading – 3/15/19

Was Friday morning’s gap-up a bullish price probe, or a bearish exhaustion gap?

The Bearish Case – we got a fantastic upside surprise from the big retail-sales report Friday morning, but the market was not able to advance. If it can’t advance on incredibly good news, what’s it going to take? The market’s reaction to the news was definitely not bullish.

The Bullish Case – On Friday night, all four commentators on the McLaughlin Group said that they expected a double-dip recession, and all the traders on Fast Money were bearish. I was a bit startled by all the negativity, and the market almost always rallies in the face of such sentiment.

A possible resolution for this setup is that the market will pull back a bit, sentiment will get super-bearish very quickly, everyone will fall into the bear trap, and then get short-squeezed out as the market rockets up to the TARP gap in SPX 1200 country.

Larry “Global Job Creation” Kudlow

Ron Paul has joined me in advocating the repeal of NAFTA. Congratulations to Mr. Paul for renouncing his globalists ways.

But the same cannot be said for Larry Kudlow. In fact, he is every bit as passionate about exporting jobs as he has ever been. If you fast-forward this video to 3:45, you will see the spectacle of Kudlow pounding the table for “global job creation”:

It’s pretty jarring to see such a thing while the US economy has not been able to create jobs for over a decade. Kudlow is clearly mad, but he is also shilling for the powers-that-be and the favela-style economic system that they have planned for the USA.

If you scroll the video back a bit, you will also see the new meme that they are trying to infect us with. It goes like this:

“It’s OK for the USA to have wide-open free trade with low-wage nations because all the factory jobs lost will be compensated for by many new back-office jobs at corporate headquarters in the USA.”

CNBC has been trying to inject this meme into your brain, but I believe it will be strangled in its crib. A good meme requires plausibility, and this one is just plain ridiculous.

If GM moves a plant from Detroit to Guadalajara, how many more office workers do they need to hire at headquarters? They may have to replace some current workers with bilingual workers, and maybe hire a couple of logistics people to work on getting the cars imported back into the USA. But what are the chances that the number of factory workers laid off would be equaled or exceeded by new office workers? ZERO!

Note to CNBC/Kudlow/Evil Overlords: If your new meme is so smart, why isn’t Detroit a paradise? Why are all those factory workers still unemployed? Give it up; you’re not fooling anybody.

I’m sure you have also heard Kudlow shouting about King Dollar, right? There is an “on-shoring” phenomena going on caused by the weak dollar which is forcing American companies to bring jobs back home. That’s making Kudlow apoplectic. Even I was startled when he recently went berserk on Obama for not making more NAFTA-like trade deals. I mean, really, only a crazy person would expect the President to export more jobs, right?

Kudlow is losing it, and that’s a sign that millions of factory jobs just might be coming home soon.

Note to Canada: I don’t see thousands of maquiladoras along your border, so you’re OK in my book.