Thursday, June 05, 2008

Jobs' Report Up Next

Top Line: Friday brings the much awaited (at least here at the Update, anyway) jobs' report. The optimism the stock market has shown the last two days reminds us that we always need to respect the wishes of the traders on any given day. We (still) think this up move is over right after the report comes out on Friday morning.

On Thursday, the stock market jumped on what appeared to be a move based on oil also jumping over $5. We have mentioned Several times that the move in the stock market and the oil market are driven by the same thing--liquidity. What that means is the dollars are floating around and need to find a home. The go into the stock market and oil, similarly. This being the typical bullish period of the month (the week or so before the employment report), we are not surprised by the two moving up together. Not happy about it either...

But, the up move did give us our chance to complete our deployment of idle cash. Right now, we have fully commited as much as we intend to the short side of the stock market. This up move should be a good opportunity to do this...but only time will tell.

The news items that the media deemed the ones that moved the market were fewer jobless claims than expected (this number comes out every Thursday morning and is called the weekly jobless claims) and also improved retail sales. The market wants to believe that the economy can come back from the brink of recession based on one weekly jobless claims figure or that retail sales will bounce back and stay higher after the "economic stimulus package" has been exhausted.

The key informaton for us is the 12,750 level in the Dow and it is still over our heads. We recall this evening the somber mood on Wall Street just before the JPM buyout of Bear Stearns. How many people had figured the market was going to go into a downward spiral and that was only a few months ago. That is all but forgotten now that the market is moving up, two days in a row.

We hate to bring the facts into the conversation but the market probably peaked back on May 19th when the Dow closed above 13,000. Since then the Dow has decisively broken through the 12,750 level and now is trading below it. Still bullish sentiment is at high levels and few believe the market can go down at all. The volatility indexes show near complete complacency at about the same level as the indexes were back at the highs in October.

We remain bearish...

CM, one of our regular readers, has provided us with a little reading material which, of course, lines up with our position on residential real estate leading the economic slowdown. In this article, we read that a milestone of one million homes are in some stage of foreclosure. We highly recommend reading this article because it points out the huge numbers which won't go away easily. Thanks, CM.

We had seen another article that shows how things became the way they did. This article puts the reality of the crisis in perspective. We quote the article here, "She acknowledged that she stated her monthly income as $7,500 on the loan application -- nearly double what she was actually earning in her job as a clerk at a food processing company and a second part-time job." With that stated income, she received an 80/20 loan (this is a loan that has a no insurance payment 80% first mortgage and a 20% home equity loan--so, no down payment is required) on a $412,000 house. The payment recently jumped $450 to $2,650, so it must have Also been an ARM...oh my.

Happy trading after the jobs' report...

FSI: 96.70 (just over last week's high but still down almost 10% on the year)

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