Friday, January 10, 2014 Zeb’s Vue

General Information and Analysis

 

US

Comment for 1/10/2014	Measure	Indicator	Ranking
Weekly RSI	WeeklyRSI	72.6	OverB
Long Term MVA (200 day MVA)	200 MVA	9.68%	Bull
5 Day Slope of 55 day MVA	Slope55MA	0.47%	Bull
Intermediate Trend (Using ADX)	ADX(14)	18.58	Neutral/Chop
Short Term Trend (Daily RSI 3)	RSI(3)	66.49	Bullish
Relative Volatility ATR vs. 1Stdev	ATR(90)	0.59%	Calm
VIX - MACD 10/30 (slope down)	MACD	0.006	Neutral/Bull

 

Comment:

Long Term price movement is bullish.  Short term, the market is calm.  Look for a storm (up or down) soon.  There is a high probability the calm will not last, and the increase in volatility could be violent (up or down). Yesterday the market chopped and closed relatively unchanged.    The labor market report was at 8:30 AM EST, and it caused a huge spike down in the futures market, and then as of 9:00 AM EST the futures market had recovered most of it. 

There is a high probability under a spike like that with such a wide range, the rest of the day will be extremely choppy.    

The table above is a rating for intermediate and long term trend in the S&P500.  I used the S&P 500 as the indicator for the USA stock market.  For day traders: You may find it useful to trade in the direction of the trend.  However, looking at any daily chart over lots of years, the trading direction for the day is pretty random. 

S&P PIVOT ES Mini March Contract - Tuesday- Useful on Friday 1/10/2014

Yesterday			Day Before Yesterday
High	1839.00		High	1834.75
Low	1824.25		Low	1825.50
Close	1833.00		Close	1832.50
R2	1847.00		R2	1840.25
R1	1840.25		R1	1836.50
Pivot	1832.25		Pivot	1831.00
S1	1825.50		S1	1827.25
S2	1817.50		S2	1821.75

The numbers tell the story better than my words.  Yesterday was choppy with the Pivot providing support and resistance.  The Close even closed within 2 points of the pivot for that day. 

Stocks –

Zeb’s View:

The futures markets were up overnight with the S&P 500 e-mini leading the way.  Then the employment report came out.  The market spiked down, and then recovered most of its losses. 

The numbers exceeded expectations, and possibly there was no fundamental reason for the market to spike down.  The drop of unemployment to 6.7% was not due to the cancellation of unemployment benefits. That will come in the next report. 

From an economic perspective, the report is positive.  However, much of the drop in the unemployment came from people dropping; not finding new jobs.  The Labor Force Participation Rate dropped to a fresh 35 year low. In another way of looking, US employers hired the fewest workers in almost three years (yet the unemployment figures go down).  The hiring set-back is at odds with the BLS employment indicators and the upbeat view of the job market. 

The average workweek declined as well.  Possibly this was from the bad weather that hit the East and Mid-West. 

So the BLS reporting remains rosy, while the jobless numbers increase substantially.  It is weird to this reporter how the government has learned to manipulate our minds, while they report misleading numbers.

It was/is interesting the spike up in Gold, and that Gold has not retraced. 

It is also interesting to view the Dollar Index.  It was positive going into the labor report, and the Dollar Index sold off and is negative. 

Bill Gross:

The following is a quote from Bill gross on the Employment Report.

PIMCO.

"I am amazed at the fascination and emphasis placed on the u-rate during employment Fridays. Bond prices will move (in some cases by points) with a minor up or down change in unemployment relative to expectations, but when it comes to the third little pig of the litter – inflation – no one seems to care. This number – the PCE annualized inflation rate – is released near the 20th of every month but you will not see CNBC or Bloomberg analysts waiting with bated breath for its release. I do. I consider it the critical monthly statistic for analyzing Fed policy in 2014. Why? Bernanke, Yellen and their merry band of Fed governors and regional presidents have told us so. No policy rate hike until both unemployment and inflation thresholds have been breached and even then “they’re not thresholds,” they’re forks in the road that may or may not lead in a different direction. (To paraphrase Yogi Berra, “if you come to a fork in the road, you don’t have to take it!”) At the moment, the Fed’s fork or target for PCE inflation is 2.0% or higher while December’s annualized rate was only 1.2%. Miles to go before Yogi or anyone else has to begin worrying about a policy rate hike. 2016 at the earliest."

7:50 PST  Bonds - Comment on Bill Gross's position

I read as much as I can find from Bill Gross.  He is the king of bond trading.

Last week (as noted in this blog) 10 year Treasures touched the 3% mark, and it is now around this level.  The 10 year provides a good direction for interest rates longer term, from my observations.  The 10 Year bonds are also closely correlated to mortgage rates. 

Except for one brief period in 2013, rates have not been at 3% since 2011.  In May 2013, there was record low mortgage rates, but then lip-flapping by Dr. Bernanke about tapering entered the market.  As everyone knows, there has been no tapering, and the Federal Reserve this month begins a miniscule tapering measure.  The Fed is still going to print fiat money at $75 billion per month. 

Personally, I would not want to short bonds anytime soon.  There are way too many variables (including Janet Yellen). 

If you disagree and you believe rates will move significantly higher, then invest in an ETF such as TBT (NYSE:TBT). 

For me, there are too many variables.  We have no idea what the Federal Reserve will do by April.  Today's employment numbers suggest tapering (which may be  why the stock market has taken a drop).  However, inflation is low and lowering.  By the way, is there a relationship between inflation and real-employment?  You can take money to the bank that we will not have inflation until wages rise and real employment (labor participation rate) increases.

Do not bet against bonds until there is higher PCE and CPI.  One could imagine an inflation dove (as Dr. Yellen has proven herself) to allow inflation as high as 4% before doing something.  She may even want more than that. 

Possibly the key will be if interest rates spike in a very short time period.  Then QE would be back on the board, greater than the tapering (or in other words beyond the $85 billion per month before tapering.) 

If CPI was to raise to 5%, then the Federal Reserve will have to worry, as they would be concerned about rising consumer price as opposed to rising asset prices. 

Every trader and investor is going to have to worry more about inflation in the USA before interest rates rise.  There is no fear (mostly) in rising interest rates or inflation among bond traders world-wide.