US Stock Market: Waiting For The Employment Number And The Stimulus

Last weekend’s post, Preparing for a Big Drop, so far appears to have been off-the-mark. Market participants today (Thursday) anticipated passage of the stimulus bill, and seemed unconcerned about tomorrow’s (Friday) employment number. At the same time, technically the market is trading in a narrowing range, with seemingly a high likelihood of a break in either direction soon. Here’s the 60 day SPY (SPY) chart. Price has been consolidating to form a wedge, and is sitting near the top of the range.

- iShares Russell 2000 index ETF (IWM) is also in a narrowing range. A move over 47.70 would likely generate some buying momentum.

- QQQQ (QQQQ) appears to be the most bullish, particularly when considering today’s increase in volume. A convincing break above today’s high would have me buying.

Bespoke Investments reported that treasury yields have been climbing, indicating money is flowing out of treasuries, and likely into equities:

After floating around the 0% level for a couple of months, yields on 1-Month and 3-Month Treasury Bills have finally started to move higher over the past few days. The 1-Month yield has moved up to 0.21% from 0.005% just last Wednesday, while the 3-Month has moved up to 0.31%.

In my mind, the worsening employment situation is among the darkest clouds on the horizon. As people lose jobs, home prices will continue to fall, banks will continue to lose money on their overleveraged investments, and retail businesses will increasingly struggle. At the same time, if the market can absorb tomorrow’s number and rally, the bulls will gain some significant momentum.

Considering these crosscurrents, we should look at some sector charts. Retail had a big day today. I have no idea why a long-term investor would want to buy retail here, but they were certainly buying today. At the same time, looking at Retail HOLDRs ETF (RTH), the chart does not look bullish to me, up nearly 5% today on decreasing volume, and running up closer to the 50 day moving average.

- XLY (XLY): The consumer discretionary ETF is still trending lower.

- United States Oil ETF (USO): Commodity stocks have been rallying, but the oil ETF has been notably quiet, barely hanging onto the lows.

Many commodity stocks appear extended after rallying for most of this week. On the other hand, the financials look like they maybe ready for an oversold bounce:

Mish Shedlock has more on the employment situation:

The Labor Department reported Thursday that the number of newly jobless workers seeking benefits rose last week to a seasonally adjusted 626,000, from the previous week’s upwardly revised figure of 591,000. The latest total is far more than analysts’ expectations of 583,000.

That’s also the highest since October 1982, when the economy was in a steep recession, though the work force has grown by about half since then.

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