Bill Cara’s Blog for Jan 9, 2012
CTA Trading Desk Morning Report
[9:15am ET] Good morning, Geoff here.
Friday’s much anticipated employment data did little to move the stock market. The market is overbought and had a chance to use the number as a catalyst to fall, but it did not.
There are two ways that a market can work off a former move; through price or time. In other words, the market can work off a recent run via a price reversal or through a sideways chop. The former is, of course, a reversal. The latter is a continuation pattern. We are waiting to see which one of the two will come to fruition.
Recent AAII data shows that bearish sentiment is near multiyear lows, which means that traders are not worried about a sell off. Sentiment is extremely important because the majority is usually wrong. The market needs to make new highs or the risk of a decline increases dramatically and as long as the US dollar continues to rally, that potential decline grows in price potential.
Recent economic data has been positive. I know that many of us question the validity of that data due to the “massaging” effects from government bean counters, but it is what it is. The important thing to watch is not the data itself, but how the market trades off of that data. We are here to make money, not argue about government data. With that said, the recent data tells us that the economy is moving along without falling off a cliff and the market is agreeing with the headline numbers. If that data does not change trend, the upcoming earnings season will be very important and corporate outlook on the future will be key.
We are at a crossroads in so many areas right now. Will the dollar breakout or fail? Will the euro absolutely fall apart or will there be a short squeeze that leads to a sharp reversal? What is going on with recent correlations between the dollar and stocks/gold? Those answers are obviously unknown yet many traders place big bets at crossroad periods and consequently lose a lot of money in the process. This is not a time to place big bets, in my opinion. Fortunately, we have taken advantage of the recent rally in stocks, but we are not going to push the envelope prior to price move confirmation.
As you know, we are long stocks and gold but are also hedged and ready to take additional protective action if needed. If the market moves higher, the hedges come off, if the market moves lower, the hedges are added to. It is a simple strategy that allows us to react to prices, not take bets.
Caution is warranted.
Have a great trading day!
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||41.00 (2.15%)||Components, Chart, More|
||2.02 (0.10%)||Components, Chart, More|
||5.07 (0.16%)||Components, Chart, More|
||14.82 (0.24%)||Components, Chart, More|
||1.46 (0.47%)||Components, Chart, More|
|^OSEAX||OSE All Share||451.04
||0.91 (0.20%)||Components, Chart, More|
||1.29 (0.41%)||Components, Chart, More|
||7.85 (0.13%)||Components, Chart, More|
||6.88 (0.12%)||Components, Chart, More|
||3.80 (0.42%)||Chart, More|
||5.33 (0.64%)||Components, Chart, More|
||2.88 (0.20%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||642.44
||5.14 (0.79%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Vad’s Catch of the Day
Kaimu’s Sound Money
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report
Jeff Borsato’s Hidden Truth
From Geoff to Jeff
I always read Geoff’s opening remarks before posting most days because in addition to his thoughtful commentary I like it when we are both have similar thoughts on our mind about markets.
This morning I was thinking about the recent down-tick in the unemployment rate in the US and market reaction to it. Most interesting was media commentary about the report; it encapsulated much of what is wrong with financial punditry in the mainstream media.
Commentary tended towards disbelief as in “how accurate is this number, can we really be certain jobs were created?” or cynicism about the nature of employment itself, “there may be more jobs but what kind of jobs are they?”. The principal difficulty with employment statistics is that we rely so heavily on them as bellwethers of the economy but they tell us only part of the jobs story. But quality of jobs is hardly quantitative, reports about “poorly paid service” jobs making up the bulk of new employment sounds bad, it sounds like a poor foundation upon which to rebuild your economy but it neglects to consider what life is like for those with no job, on government benefits and the psychological stress of searching for work while caring for a family.
Many jobs start out poorly paid, contract or part-time before moving into full time, benefit-contributing work. Far from ideal, but far better than food-stamps and welfare lines. So long as more people are finding some kind of gainful employment, and more people are returning to the job market to assume said employment, the general state of the economy can only be better than the alternative which is ongoing entitlements, black-market labour and the kind of soul-crushing depression that can accompany long-term unemployment.
Its the “best of a bad situation” argument, and it is hardly a nuanced one, I know. The issue being that the constant barrage of “America and Europe are going to hell in a hand-basket” is all too commonplace, and lacks any real nuanced examination of what is actually good news. What would make the mainstream media happy? Drastic declines in unemployment comprised of well-paying skilled labour jobs in rust-belt regions with medical benefits, pensions and the promise of decades of uninterrupted work? In addition the industries granting these jobs would have to be in green and or environmentally sustainable industries, provide ample benefits and sick-time for parents, and be located in a region where people can ride their bikes to work.
Im exaggerating for effect but the point is clear: more people working, more people encouraged to go back out and look for work is better than people not working. Under-employment is a key catchphrase these days, it implies that people will accept jobs that are below their skill-set. It ignores that this is very often a temporary state of affairs for those who can rise through the ranks of a given organization. Anyone who has worked for a bank, government or large corporation understands that a college educated person of average to above-average ability can at the very least rise from mail-room staff to a typical white-collar desk job after some time. CEO? probably not, but there is no such place where the economy is growing on the backs of perfectly suitable, well paying jobs all the time. People make moves, sacrifice, take pay cuts or take chances to do something to improve their situation.
At any given time millions are lining up around the world in hopes of coming to the United States (and to a lesser extent Canada!), they must not be reading most newspapers that do nothing but speak of blight, depression and dwindling opportunity decade after decade since the 70′s. The media is always behind the curve on economic issues, and my feeling is the next decade will prove them wrong again. I don’t believe we are heading into a period of prosperity as much as we are continuing to simply get a bit better year over year as we have for the past century or so. No biggie!!!!
Que stories about the Toronto Condo market crashing, about dwindling supplies of food that never seem to materialize, about high energy prices around the corner that aren’t coming true or war in the middle east that is in reality one massive OCCUPY protest that is more peaceful than any regional coup in decades. Europe suffered the lost of almost 100 million people after World War 2, their cities and hearts were shattered, and somehow they continued. People speak of a collapse of Europe if the retirement age is raised by two years, or if governments trim budgets… riots are common at soccer matches in Europe, yet when they take place in front of government buildings we run for the exits changing Euro’s for US dollars!!!
If Europe does indeed collapse, it will be because of a large-scale inability to see how generations prior have survived much worse for much longer than anything we see today.