AM: Employment Surprise

S&P500 daily at 1:05 EST

Surprise employment numbers fails to excite the market.  Is this giving us valuable insight into the market’s biases and disposition?

MARKET BEHAVIOR

Interesting price action this morning as the market shrugged off a far better than expected employment report.  It is noteworthy when the market fails to respond to positive news and can be a red flag signaling near-term weakness.  If good news can’t lift the market, what will bad news do?

We opened above the 50dma, but fell back under this psychological level within the first hour of trade.  Failing to hold this level for the second time in just over a week is not encouraging.

MARKET SENTIMENT

The market popped at the open, but quickly fizzled.  The gap was quite modest and short-lived, so it doesn’t count as a short-squeeze because it never put much pressure on shorts.  Most likely early gains were people rushing out to buy the headline and follow-on buying never materialized.  The early rally could be a victim of lack of buying rather than hit by a wave of selling.

People are tearing apart the employment report looking for reasons to doubt the headline number, but that is their cynical bias showing through.  They don’t want to buy this market and are looking for an excuse to ignore an otherwise positive result.  Remember, news doesn’t move markets, people’s reaction to the news does.  This is a subtle, but important distinction.  No piece of news is 100% positive or 100% negative.  There are always nuances to every story and depending on the mood of the market, it can grab on to either side.  With today’s employment report it would be extremely easy for traders to focus on to the headline number and run with it.  But it takes a bullish bias to ignore the negative aspects of part-time work and discouraged job hunters leaving the labor force.  We fell on the other side where the market ignored the headline and sold off due to the negative nuggets contained in the report.  This shows a bearish bias toward the news as traders fretted over details buried in the story.

The employment report is now in the rearview mirror and the market’s attention has already shifted to the next thing.  But we can use this result to gauge the market’s sentiment going forward.  Today’s early price action shows a lot of bearish cynicism and could set the tone for the coming weeks.  If good news cannot lift the market what will?

TRADING OPPORTUNITIES

The unexpected surprise from the employment report didn’t produce the bounce it could have.  That is a very ominous warning.   Of course we need to watch how the market trades through the rest of the day.  Cynics could have taken hold early on but might lose control this afternoon.  This is a volatile market and often the initial reaction to a major story has been wrong.  Which will turn out to be the head fake, this morning’s pop, or the subsequent selloff?  One of them is wrong but it is too early to say.  In recent history, the wrong move corrected within hours.  Will we see the same here?  How the day closes will give us more information.  A weak close could be bad news for the markets as we get closer to the Fiscal Cliff.  A strong close will show traders are already looking ahead and less worried about what is in front of us.

AAPL daily @ 1:06 EDT

INDIVIDUAL STOCKS

AAPL is giving back some of yesterday’s big pop, but still well above yesterday’s lows.  This is turning into a highly emotional stock as it whips around.  Every moment of relief has been followed by another bout of terror.  And this isn’t a one way story, both bulls and bears are getting shredded by this volatility.  This has become a great swing trading story where you sell the rallies and buy the dips.  It will probably keep this up for some time to come as the stock turns over its core ownership base from complacent speculators to steadfast value investors.  Unlike spectacular breakdowns in NFLX and GMCR, AAPL has the fundamentals to back up its valuation.  Heck it is undervalued as compared to the broad market given its dividend and growth.  This is one of the most successful companies in the world and it is trading at a legacy company valuation.  But that doesn’t mean prices can’t continue to decline as emotion overtakes reason.

Stay safe