Home > Uncategorized > 2011/09/02: QuickPost: The Good, the Bad & the Ugly on US Employment Day… and an Ambush?

2011/09/02: QuickPost: The Good, the Bad & the Ugly on US Employment Day… and an Ambush?

Yes, we know, more cowboy market metaphors… but these are ‘cowboy’ equity markets insofar as the trend evolution is more so a series of showdowns at important technical levels than what can normally be considered orderly trend evolution. So you better be ready to ride the bucking bronco if you want to trade or invest in these conditions, and if you know the right places to look it does make it just a tad less diabolically challenging.

The Good is the fact that there will actually be more people at work than turn up in today’s official figures. The Bad is that the US housing authorities are suing more than a dozen big banks for fraud over the bogus housing boom mortgages that created so much trouble. And the Ugly is what we’ve consistently warned about as many folks have gone back to staring at the economic data: Europe. As to the Ambush, we’ll get to that in just a little bit.

The Good relates to the timing of the strike last month that ended shortly after the sampling period for the official US Non-Farm Payrolls figures. That included 46,000 workers who will not be included in today’s payrolls number. As such, even if the actual data comes in at the low end of the very broad 20,000-150,000 range of estimates (with 75,000 being the consensus), it is actually better than it appears. The figure of 30,000 would therefore more so reflect a reality that is right around the consensus estimate. The question is whether the market will know this? The answer will only be apparent if indeed there is a weak figure, and a September S&P 500 future that has already slipped down into its key 1,192-85 support below the obvious psychological and technical 1,200 area manages to hold and rally in spite of the weak number.

The Bad is that maybe the timing of the US federal housing agencies suing more than 12 big banks for mortgage fraud they allegedly engaged in back in the housing boom could’ve been worse, but we can’t really imagine how that might’ve been other than back at the depths of the US banking crisis in early 2009. Certainly some address of the degree to which NINJA mortgages (no verifiable income, job or assets) were handed out like party favors is likely in order. And we appreciate the suit was launched at this time because the authorities were running up against the statute of limitations on that filing.

Yet, considering the economy is weakening again and there is significant concern over other policy initiatives (regulations and taxes) that the current administration is anti-business, this is not helpful. A significant portion the official pronouncements on encouraging banks to make ‘good’ loans has been a canard, where the actual directives to the regulators have been to ride them hard on credit quality. And even though the initial suit is only for $900 million, this could escalate into billions of dollars, or even tens of billions. Yet another incentive for the Bigs to sequester funds in their balance sheet that they may (or may not) need to fund any legal settlement. Not helpful.

The Ugly remains the most vexing problem, and one that so many market participants have been happy to try and ignore once again: Europe.  It is always fascinating to us that as soon as a crisis cools down even a little bit there is a tendency for so many observers and investors to revert to looking at the economic data as a key to the future equities trend evolution. Recent comments and analysis has run true to form: we have seen a minute dissection this week of whether various countries’ Purchasing Managers Indices of Manufacturing have either held up slightly above or slipped slightly below 50.0. Within the focus on the US economy there has also been the encouraging ICSC reports from retailers, vehicle sales holding up as well as expected, and the very encouraging ISM Manufacturing Index remaining well above 50.0 rather than sliding below it as expected.

Well… Yippee-ki-yi-yay. Yet here we are this morning with the only other meaningful news outside the US showing that Japanese capital spending imploded last month, and outside the economic data we have the drumbeat of incessant abysmal assessments of the Greek situation. How is it that during these market lulls when the equities recover to some degree so many ostensibly highly informed and astute participants forget about the fact that the auditors are in picking apart the books of Greece, Incorporated?

General Market Observations

And that’s where the Ugly comes in: the degree to which the cultural differences in Europe means that the successful northern tier countries’ rescue of their profligate southern sisters remains an area that is likely fraught with risk. For more on that we suggest you revisit our post from Tuesday How We Got Here-III: The ‘Mad Monger’ Highlighted the Competing Agendas in Europe.” And that remains significantly important because of the calendar into the US Labor Day holiday weekend.

And therein lays the Ambush potential. However the markets might react to the US  Employment report today, it is a market holiday there on Monday just as all of the other international Purchasing Managers Indices of Services are released. Therefore, even if we want to focus on the economic data, the US will be sidelined during the next round of important economic releases and have to play catch-up on Tuesday with any significant move. Of course, there is also a consideration of whether there are any further developments on the Euro-zone sovereign debt rescue front…

…and that also becomes very critical next week with the German constitutional court ruling on Wednesday regarding whether Germany can legally participate in funding the rescue packages. That is followed on Thursday by the next ECB (most likely no-action) rate decision, and far more important press conference. Lest anyone forget, the situation surrounding the last ECB meeting on August 4th was the driver for the implosion of the S&P 500 below 1,250 to the 1,100 area. As explored at length in the Tuesday post cited above, that was in the wake of Italy’s Berlusconi refusing to address the his country’s fiscal situation, which left the ECB unwilling to purchase Italian government bonds for a couple of days. Do we need to ask what might happen if the German constitutional court rules against the major funding source for the debt rescues further participation?

EXTENDED TREND IMPLICATIONS

The most critical indications will be for equities and govvies. As the September S&P 500 future has already slipped back from a test of the very important 1,224-1230 congestion and Fibonacci retracement area, any failure well back below 1,200 is going to look pretty ugly. However, that would need to be at least a weekly Close (i.e. today) below the important interim congestion in the 1,192-85 area that we have focused upon repeatedly during the various swings in this lower range.

In this case that includes the degree to which it is closing off the gap higher on the week from Monday to a degree that impugn its further ability to support the market. If so, that would likely also encourage an escape from resistance in the govvies. Most pointedly that would mean a September T-note future push above 130-20, and a continued bid in the September German Bund future above the 135.50-.80 oscillator resistance it is already  trading above this morning. In each case that would indicate a further push up of at least another point-and-a-half, and possibly as much as several points higher. We shall see.

Thanks for your interest.

[There is now also a follow-on observation below from somewhat after the very weak August US Employment report impacted the markets.]

 

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  1. September 2, 2011 at 10:08 AM

    It is most interesting that the September S&P 500 future gapped below the 1,192 – 85 important interim support on the opening of the day session. At the very least this points toward the potential to retest the mid-1,100 area if It cannot claw Its way back up for a Close today at least back at the low end of that range today.

    There is also the consideration that the drop back this far below the 1,206.50 high of the initial bounce two weeks ago Negates the UP Break out of the loose Double Bottom formed on the selloffs in early and mid August. However, as we find the designation of those swings as a true Double Bottom a bit of a stretch, we do not necessarily subscribe to that more negative view. All we know for now is that the S&P 500 has failed at the key 1,225-30 resistance, and need to monitor the further evolution of the trend.

    That said, even the degree of further weakness we are expecting in the near term if the market does not recover by later today is going to tend to support the higher activity in govvies and gold.

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