May Employment Report Indicates Economy in Trouble

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


According to the May monthly employment report, 431,000 jobs were created last month. Unfortunately, almost all of these jobs were temporary Census positions. Private sector hiring was dead in the water.

The Bureau of Labor Statistics (BLS) further stated that the unemployment rate in May fell to 9.7% from 9.9% in April. The massive addition of Census jobs, which only last a short time, was behind much of the drop. The BLS also claimed that 286,000 people left the labor force. Those people are not counted as unemployed. The May unemployment rate that includes workers still in the labor force, but who didn't look for a job in the previous four weeks, and those who are forced to work part-time because no full time job is available was 16.6% (seasonally adjusted). Long-term unemployed reached 6.8 million in May and this group of the unemployed accounted for 46% of the total - worse than any previous post War recession.

The jobs reports for March and April were heralded as evidence that the U.S. economy was recovering. The May report indicates that judgment seems to have been premature. As an example, Construction lost 35,000 jobs in May and this reversed much of the gains reported in the prior two months. Mining and Heath Care were the two big gainers in May, adding 10,000 and 8,000 jobs respectively. Health Care has been the only sector to continually add jobs since the recession began in December 2007.

The job gains reported by the BLS during the last year have been disproportionately accounted for by Census hiring. The BLS has of course not admitted this since it would undermine the U.S. government's claim of a recovering economy. In March, I reported how the BLS seemed to be placing Census jobs in the Business and Professional Service category. Within the last week, John Crudele of the New York Post has written a series of articles documenting how the Census has hired and fired workers up to four times and by doing so managed to create a 'new' job each time. The Financial Times in London estimated the U.S. was hiring 1.2 million Census workers for the 2010 count, whereas only 600,000 were needed in 2000. The Census has not only been used as a covert government jobs program, but hiring and firing since the second half of 2009 has been done is such a way as to inflate the total Non-Farm Payroll numbers. Moreover, Census supervisor jobs seem to have been listed in such a way as to make it look like businesses and not government was doing the hiring.

The May employment report indicates that there is little hiring activity going on in the private sector. This is the case even though the federal government has spent trillions on bailouts and economic recovery measures during the last two years. This money has essentially kept the U.S. economy from collapse, but it has not created the promised growth. How much longer can this game go on?  It will be interesting to see what happens to the job numbers in the next few months when more than a million Census jobs disappear.
 
Disclosure: No positions

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Some Curiosities in Wednesday's Market Rally

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


U.S. stocks had a big rally yesterday with a surge starting at approximately 2:20PM New York time. This rally was counter to the direction of the news flow and had many of the earmarks of central bank intervention.

Central banks will pump liquidity into the global financial system to prop it up at key points (informed cynics would use the word manipulate and might cite the U.S. Plunge Protection Team as the source of these activities). A recent example of this was the ECB's huge injection on the morning of May 10th, which caused an explosive rally for U.S. stocks on the open.  Draining the liquidity the following week caused the market to drop back down again however. These central bank activities would therefore be more accurately be described as massive pump and dump operations. If a stock manipulator in the U.S. was caught doing this, he or she would go to jail.  Governments though don't think they have to follow the rules they make for the little people.

A big liquidity injection will usually take almost all stocks up, even some highly improbable ones.  Currently stocks related to the BP oil spill off the Louisiana coast would be the best examples of this. PB had has a series of failed attempts at controlling the massive leak that is now threatening Florida beaches.  Its Operation Saw effort failed yesterday when the riser package got jammed and this could be seen through a live feed on the Internet (the saw now seems to have been freed). The situation has become so bad that Internet buzz is starting to question BP's survival. The lawsuits against the company keep escalating and some of the potentially biggest ones aren't even on the company's radar screen yet.

On this continual wave of bad news, how did the companies connected to the oil spill perform in yesterday's market?  British Petroleum (BP) was up 3.0%.  Anadarko (APC), which owns 25% of the operation, was up 5.1%. Cameron International (CAM), the provider of the failed blowout converter, was up 7.0%. Halliburton did the best of all rising 10.7%. Only Transocean (RIG) was down, falling 3.5% (although it is up by 3.5% as this is being written). Interestingly, I saw mainstream news reports that only cited the drop in Transocean stock and ignored the huge and rather inexplicable gains for the other companies.

The timing of yesterday's rally was also a bit too convenient. President Obama gave a speech on the state of the U.S. economy in Pittsburgh that ended around 2:20PM. As the speech ended, critical commentary was hitting the news wires about how his efforts to fix it have failed. Obama's February 2009 almost $1 trillion stimulus package for instance was supposed to keep unemployment from rising to 8.5% and it is now 9.9% more than a year later. Without the hiring of 1.2 million temporary census workers (twice the number used in 2000) unemployment would be significantly worse. Nevertheless, the market took off in a huge rally as the speech ended. This well-timed ringing endorsement from Wall Street of Washington's failed policies could have been mere coincidence or the invisible hand of the Federal Reserve acting behind the scenes.

During the Credit Crisis in 2008 the market constantly had big up and down days. As time went on stocks continued their downward slant because the up days were always undone within a week or so. Only when the market finally calmed down in March 2009 was a sustainable rally possible. Volatility began rising in 2007 though and the early increases, similar to the ones taking place now, were merely a warning of much worse things to come the following year.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

June Begins With Continued Market Weakness

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After a sharp drop on the open, U.S. stocks mounted a rally and remained positive for most of the day. Selling toward the close, a classic bear-trading pattern, clocked the rally however. Small caps were hit particularly hard.

Healthy markets are strong in the beginning of the month. Trading days before major holidays, like Memorial Day, also tend to be positive. Last Friday was a down day however as was the first of June. Bull markets also tend to be weaker in the morning and stronger at the close, when professionals control the market. The market's attempt to follow this pattern failed miserably yesterday. It was also not the first time lately that strong selling occurred toward the end of trading.

The Dow Jones Industrial Average dropped 1.1% or 113 points. It barely held the key 10,000 level, with the low of the day at 10,014. As of June 1st, the Dow has spent time below its 200-day simple moving average for eight days in a row, as has the S&P 500. The S&P was hit harder than the Dow, falling 1.8% or 19 points. Nasdaq, which tends to be more volatile, lost only 1.6% or 35 points. Nasdaq had been trading completely above its 200-day at the end of May, but closed a tinge below it yesterday (this can only be considered bearish). Small caps experienced the biggest damage by far though, with a loss of 3.2% or 21 points on the Russell 2000. Nevertheless, the Russell held above its 200-day line and is still technically in the best shape of all the major U.S. stock indices.

The euro (FXE), which has been the driver for market behavior for months now, moved mostly with the markets yesterday.  Sharp selling on the open and quick recovery just like stocks, but then a slow fade for the rest of the trading day. The euro's loss of momentum was an early warning that stocks would be doing the same later on. The euro closed at 122.03 with an intraday low of 121.51. Its low in the sell off so far has been 121.27. There is support around the 120 level. The trade-weighted U.S. dollar on the other hand has resistance around 88 and closed just above 86.75. During the 2008 Credit Crisis, the euro spent seven weeks around the 125 level and then had an explosive relief rally. We should be seeing just such a rally again sometime during the summer. It will likely fade right back to the low after a number of weeks, as was the case in early 2009. This time the euro may even go lower.

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

One Way to Tell if We Are in a Bear Market

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Bull markets usually go up the first four trading days of the month. After giving a strong negative signal in May, investors should be watching this indicator in the early days of June. A second negative signal would be a confirmation that a new bear market has begun.

Money tends to get reallocated at the beginning of the month. The behavior is more pronounced at the beginning of the quarter and most pronounced at the beginning of the year. In bull markets, much of this money gets allocated on the buy side for stocks. In bears markets, a higher percentage of investing money will go to safe haven assets. So in a bull market the first four trading days (not five as many sources claim) of the month tend to see a nice rise in stock prices. The first couple of days are almost always positive.

Even in strong bull markets, not every month has to have an up move in the beginning days. Every so many months, investors are likely to grow cautious and take some profits. The bulls should regain control for the next several months however before profits get high enough again so that investors want to take some money off the table. So far, the rally that began in March 2009 has managed to just hold together.

The first negative signal for the rally was given in July 2009 for the Dow Jones Industrial Average. The next month was positive though and then another negative signal was given in early September. This was followed by a number of months that when stocks were up in the first four days. Then February 2010 gave another negative signal. March and April were once again OK and then came May.  The flash crash happened on the fourth trading day of May and the market was already down before it occurred. May was an ugly month.

Four negative signals on the first four trading days of the month indicator are a lot in just over a year. It indicates a rally that has weak underpinnings (as does the falling volume on the Dow during most of the rally). We still have not as of yet seen negative signals two months in a row. Maybe we will by June 4th.  If we do, it would be strong evidence that a new bear market has begun.

Disclosure: None.

Daryl Montgomery Organizer,
New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Is a Head and Shoulders Top Forming in Stocks?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The U.S. markets are trading like some highly volatile emerging market, just as they did during the Credit Crisis in 2008.  Yesterday, the move was up with the small cap Russell 2000 gaining 4.2%, Nasdaq 3.6%, the S&P 500 3.2% and the Dow 2.9%.

While big gains make investors happy, they are not a sign of a healthy market if they alternate with big losses. Stocks opening with big gaps, prices much higher or lower than the previous close, are also not behavior bullish investors would like to see. Nasdaq gapped up approximately 58 points on Thursday - a huge amount. Ironically, Nasdaq traded to fill a gap made on the downside on May 20th (as I predicted would happen in a previous article).

At this point, U.S. investors should be looking for the formation of known topping patterns. These can occur in just one, two, three or all four of the major indices. In the 2009 March low for instance, the Nasdaq made a clear double bottom, whereas the other indices had sloppier action. Right now it looks like the Dow Jones Industrial Average and the S&P 500 are trying to form a nice even head and shoulders top (the pattern would have a somewhat higher right shoulder on Nasdaq). The head would be the market top in late April and the left shoulder the high in January. The bottom of the pattern is the market low in February and the recent market low on May 25th.

Technically, the Dow and S&P 500 are the weakest of the four indices. Even after yesterdays powerful rally, they still closed a tinge below their simple 200-day moving averages. Nasdaq gapped up above its 200-day and the Russell 2000 has yet to close below its 200-day, although it did pierce it intraday. Volume, as usual, was not supportive of the bullish price action. It was slightly above average on the Dow and barely average on Nasdaq. Volume was noticeably higher on both indices during the previous two days of selling.

Investors should also be paying attention to the action in the euro (FXE) and the trade-weighted U.S. dollar (DXY). The euro is putting in a short-term double bottom and the U.S. dollar is putting in a mirror image short-term double top. The techical indicators support the view that the euro will rally and the dollar will sell off at this point. Whether this move becomes something more intermediate-term remains to be seen.

The choppy action that is taking place in the markets is likely central bank driven. This was also the case during the Credit Crisis as well. The results of the liquidity games central banks play are more damaging than helpful in the long run. It is known that the ECB pumped huge amounts of liquidity into the global financial system on Monday, May 10th. A huge rally with a big gap up in stocks consequently took place since liquidity injections show up in trading immediately. The ECB then attempted to drain this extra liquidity several days later. The markets then traded to a lower low. Yesterday's huge move up in prices was almost certainly another liquidity injection from a major central bank. We will have to see how long they can keep the pump going this time.

Disclosure: No positions.

Daryl Montgomery Organizer,
New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Stocks Continue Volatile Trading

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


While day traders love it, volatility is never a good sign for investors. Money is made by following the trends and when wild swings up and down occur, there usually is no trend. Even if one is beginning, it's hard to discern.

Right now, stocks are attempting a relief rally to resolve an oversold condition. The market is still in a very vulnerable state. Any piece of news can whipsaw it up or down. Wednesday morning, the 'good' U.S. Durable Goods report helped send the Dow Jones Industrial Average up 135 points in morning trade. The headlines on trading terminals around the globe flashed that durable goods had risen 2.9% in April (excluding the volatile transportation sector, they were actually down 1.0%, but you had to read further to find that not so good news). Morning mania faded late in the afternoon however.

Before the U.S. markets closed, the Financial Times reported that China was reviewing its eurozone debt holdings. The Dow closed down at 9974. For the first time in months it ended below the key 10,000 number. When it went above 10,000 in October 2009, this represented a major breakout on the upside. It looked like the breakout was failing immediately afterwards and then again briefly in February when the Dow spent some time below 10,000 again. In neither case was the index below its 200-day moving average as it is now. We have already taken out the February intraday low of 9822 twice this month. The next step is an intraday number below 9647, the low in November 2009. A break of that level should be considered a sign of extreme market weakness.

Stocks are rallying smartly today however, with the Dow up more than 200 points in morning trade. China denied the Financial Times report and this made the markets jubilant. This is of course nonsensical since there is no way China would admit that it was selling its European debt. Doing so would cause prices to fall and it would lose a lot of money if it acknowledged this. Furthermore, China has a long history of operating in secrecy and admitting what it has done only years after the fact. But somehow traders think the wily Chinese are going to shoot themselves in the foot this time and admit to what they are doing in the markets.

The buoyant mood this morning caused the Nasdaq to gap up approximately 48 points. These large differences from the previous day's close have been common lately. They are also unhealthy. Gaps are usually closed within a few days. Professional traders tend to fade them (trade in the opposite direction). Professional traders also tend to trade heavily around the close as well. This helps explain the typical bear market pattern of strong opens and weak closes. That was certainly the pattern yesterday.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Stocks Rally in Short Term Reversal

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


After hitting a lower low on the open, U.S. stocks reversed their sharp downturn in late afternoon trade yesterday. The rally so far is an expected oversold bounce.  There is no reason yet to think that it will turn into something more significant.

Technicals, not fundamentals are driving stocks at the moment. Tuesday's action was an attempt to resolve an oversold condition from Friday the 14th. Seven trading days later, the major indices - the Dow Jones Industrial Average, the S&P 500, the Nasdaq and the Russell 2000 were all substantially lower. They were also well above their respective 200-day moving averages on the 14th, but all were below their 200-days yesterday.

The 200-day is the key dividing line between bullish and bearish behavior. With the exception of the small cap Russell 2000 (which is holding up best in the sell off), the major indices have violated their support at the 200-day twice in the recent sell off. The first time was during the odd crash on May 6th. Many considered the intra-day drop below the 200-day then to be a mere fluke. In the last five trading days though, the Dow, S&P, and Nasdaq have again traded below the key 200-day line at least part of the day. 

Stocks are also trading to try to fill gaps (a price range where no trading took place) in the charts. This usually occurs within a few days, although weeks and even months are possible time frames. There was a large down gap in trading on May 20th and another one before that on May 14th. The market will want to rise in the near term to at least fill the gap on the 20th. Yesterday's gap down was a short-term exhaustion gap (a gap after many down days or up days) and the markets moved up to trade into the empty space that had been left on the charts.

Technical factors are moving the market up at the moment, but once they get resolved, stocks are likely to head down again. The fundamental problems that emanate from the eurozone have not been fixed. For a major bottom to be put in, some dramatic event like a Greek default or Greece being removed from the euro currency union would be a good signal for a bigger rally. A much larger bailout, such as $5 trillion instead of a mere $1 trillion would pump up stocks as well. This is what reversed the markets during the Credit Crisis and the central bankers and treasury departments of the world will almost certainly attempt their tried and true money printing solution again. The only question is when they will do it.

Disclosure: No positions

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.