Weekend Strategy Review January 11, 2014
Posted by OMS at January 11th, 2014
The Dow fell 8 points on Friday, closing at 16,444. It was down 32 points for the week. The broader SPX rose 4.2 points on Friday, closing at 1842, which was a gain of 11 points for the week. The SPX got as low as 1832 on Friday, staying above 1820, the lower boundary of the current trading range. There were 221 new highs and 12 new lows.
For awhile, it appeared that the markets were going to break down after the horrible jobs report, but after declining 65 points, buying re-appeared and the markets held their bid into the close. This means that there is still a potential for a Big Move on Monday, as the Small Change signal from the A-D oscillator remains on the board.
I don’t want to spend a lot of time this morning talking about the jobs report. I’ll just give you some facts. The numbers speak for themselves:
– Unemployment rate: 6.7 percent, down from 7 percent in November.
– New jobs created 74K: Over 200K were expected. That’s a pretty big miss!
– Number of Americans dropping out of the labor force:350K
– Labor participation rate: 62 percent
BTW, what I found interesting about Friday’s report, was that the news media is finally starting to understand some of the things I’ve been saying for the past three years. That the actual jobs number of 6.7 percent is a sham! It has too many fudge factors in it to be useful to determine the real health of our economy. And when you don’t count the number of people who have given up on looking for work because there are no jobs, the unemployment number becomes meaningless and laughable. No matter how you look at it, the people who have stopped looking are still out of work!
The better measure is the labor participation rate of 62 percent, which reflects the fact that 92 Million Americans are no longer in the labor force. This is the lowest labor participation rate in 36 years. You have to go back to the Carter Administration to see numbers this low. Some of us can remember how we felt about the government and the economy back then. It wasn’t something I like to remember.
Anyhow, the point you should take away from all of this is that elections have consequences. And right now a lot of Americans are witnessing some of those consequences.
But my job in these pages is not to get political with you. You can be your own judge on whether social issues or a strong economy should dominate the conversation. My job is to translate what the policies and decisions of the current administration will likely mean to the markets.
Well, the first thing that Friday’s report tells me is that interest rates will likely remain low for the foreseeable future. Perhaps years. The Fed will likely keep printing till the cows come home. All the new money should continue to benefit Wall Street, at least for awhile longer. And Main Street will continue to suffer. All of this massive debt, now at $17.3 Trillion, will have to be serviced.with interest payments that will drain our country’s tax revenue. It will stymie America’s future growth for years.
However for the intermediate term, the low interest rates should benefit several sectors. We saw this on Friday, when Emeritus highlighted two home building stocks, LEN and PHM. Both stocks are coming off a TLB Pattern with a Rope Jump and Pullback. Both now have small short term Hockey Sick Patterns in place that project 4-5 points higher than current levels.
Another sector that should benefit from low interest rates is the utilities. For the past few months, most Utes have been moving down or trading sideways because of the fear of higher interest rates. After Friday’s jobs report, I don’t see this as a worry any longer. And neither does Emeritus. He highlighted El Paso Electric (EE) last night. After forming a small TLB Pattern in September, the stock had a Rope Jump and Pullback to form a nice 2 ½ month Blade. The pattern could support a move of 2-3 points higher. EE also pays a dividend of $1.06 for a 3-percent yield. While a 3-percent yield doesn’t seem like much, it’s almost 3 percent higher than what you’re getting from your savings account.
But the sector that I believe has the most potential for a big move higher is Bonds. The long bond is currently trading at 130.7 on the futures market. It gained 1.37 points after the jobs report was released on Friday. As you know, I have been talking a lot about Bonds recently, particularly TMF, the 20+ year Bond ETF. I said I was watching for the PT indicators to turn Green. Well, they turned Green on Friday.
If I’m right about the long bond moving above the 150 level in the months ahead, TMF could be a nice place to be. Just remember, the ETF is still in a downtrend, so until it performs a Rope Jump, it must be considered a trade only. This means no more than half positions, and no falling in love allowed. It also means that you MUST exit the trade IF the PT indicators turn against you.
Before I close, I just wanted to mention that The Professor only had 11 longs and 3 shorts on Friday. So the trading range continues. I will be paying a lot of attention to The Professor next week, especially with the small change signal from the A-D oscillator still on the Board. If we do get a big move, I will be very interested to see if he considers it to be the start of a new trend.
Have a great weekend.
That’s what I’m doing,
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Category: Weekend Strategy Review