Friday, October 2, 2009

Morning Update/ Market Thread 10/2

Good Morning,

Equity futures are down sharply on the employment report:

The Dollar and bonds are up, gold and oil are down.

The headline unemployment rate increased from 9.7% to 9.8% with the consensus expecting -170,000 the number came in at -263,000.

Here’s Econoday trying their best to spin huge losses in a positive light:
The September jobs report was disappointing-but the consensus may have grown too optimistic. In reality, job losses are not nearly as severe as earlier in the recession and the unemployment rate is drifting up slowly as expected. Nonfarm payroll employment in September fell 263,000, following a revised decline of 201,000 in August and a revised decrease of 304,000 in July. The August drop in payroll employment was worse than the consensus forecast for a 170,000 contraction. August and July revisions were down a net 13,000 (the net declines were worse). Losses were widespread in both goods-producing and service-providing sectors.

Turning to the household survey, the civilian unemployment rate continued its uptrend, rising to 9.8 percent from 9.7 percent in August and compared to the market forecast for 9.8 percent. The latest rate is the highest since 1983.

Wage inflation eased sharply as average hourly earnings in September grew 0.1 percent, following a 0.4 percent gain in August. The consensus had projected a 0.2 percent rise for the latest month. The average workweek slipped to 33.0 hours from 33.1 hours in August, coming in below the market forecast for 33.1 hours.

Today's employment report will set equities back as futures were down notably on the release. Bond yields fell. However, the numbers are hardly dramatically negative. It is too early to write off the recovery given that nearly everyone expected a sluggish and choppy recovery.

Now that we’re done trying to spin it, the real number to watch is the seasonally adjusted U-6 that came in at a staggering 17.0%. That’s the number that is most closely comparable to how unemployment used to be reported like during the Great Depression.

Here’s the “alternate” table, note the non-stop increases in the seasonally adjusted U-6 (click to enlarge):

And here’s the complete report for those who like to dig. If you do, you will find some staggering statistics inside. You’ll note that the government sector has been consistently the only sector adding jobs – remember that government spending subtracts from the real economy, it does not add to it. Also look at the minority and youth figures, very troubling.

Factory orders come out at 10 AM…

The S&P futures landed right on support at 1,010 after breaking down below the 1,018 pivot. There’s very strong support from here to 1,000 and then the next support pivot is at 991.

On the 3 month SPX chart below, you can see that at current levels we have broken the 50 dma and are sitting right on the lower boundary of the rising wedge which is coincident with the bottom Bollinger band:

Be careful right here, it’s very strong support, I’m sure Goldman’s computers will make an attempt from here. The NDX is also sitting right on its bottom boundary the way I have it drawn. Any further decrease in prices below about the 1,010 level will break that rising wedge and will likely signal that wave C down (the big one) has begun. I am not front running this as I know that almost always once a major support area is broken that prices will come back up to test that break from below – patience pays.

Here’s some cheerleading of my own for the most overvalued stock market in history…

The Animals – Bring it on Home to Me: