August 9, 2010: Pick an Adjective
August 9th, 2010
Resilient is the one word that comes to mind most often when market-watchers speak their minds. Friday was a perfect example of the underlying hope, despite headline data, that the job market (and economy in general) really is getting better. What was probably most interesting was how the digital (print) media largely spun the BLS Employment report. “71,000 Jobs Added in July” was the message seen by headline readers. The full number for July was -131,000 (est. was -70,000). The private sector added 71,000 (est. was +100,000). Add in the 97,000 more jobs lost in May and June than originally reported and July’s report does not offer much in the way of good news.
Futures dropped immediately and the market was extremely weak for the first ninety minutes of the day. Then, investors remembered that every recent decline has quickly been bought. Further, the bullish thought process went, with a FOMC meeting next week, how likely is it that we’ll get more bad news? So, shortly after 11:00 AM on Friday, the market firmed and clawed back most of the morning losses by the session close. For short-term tactical traders, that was a neon sign instructing investors to keep on buyin’…at least until sellers show up with any sustained conviction.
Resilient? Persistently cheap? Strong bull trend? There is a dictionary full of descriptive phrases for recent price action.
Despite the market looking past Friday’s hideous Employment report, there still are some significant technical hurdles that need to be cleared. One is that the Russell 2000 remains stubbornly below its 10% correction level (671.36). If the recovery is truly sound, one would expect strong leadership from the Russell 2000. While the index is the strongest of the major averages for 2010 (up 4.93%) and also produced the strongest rally from its 2009 bear market low (117.74%), it was also the only of the major averages to officially enter bear market territory (down 21.22% from its bull cycle high).
Another technical hurdle is the S&P 500’s current challenge of a potentially major resistance barrier. 1115.36 and 1140 are respective 50% and 61.8% upside retracements of 2010’s range. These are significant because 2010’s “correction” of 17.12% is by far the steepest since the bull trend began in March 2009. Mixed in there also is 1121.44 which is a 50% upside retracement of the 2007-2009 decline. The index continues to struggle with its 200 Day Moving Average (1115.39) as resistance. May 21, 2010 was the first full day spent below the Average since May 29, 2009. Since May 21, 2010, there have been five days (assuming today’s low holds above 1115.39) during which the index has spent the day entirely back above the Average.
We continue to believe a tremendous amount of good news is priced into the market at current levels. If the Fed blinks and does not come through with precisely the right accomodative language tomorrow, short-term momentum could quickly turn negative.
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