- Market provides the selloff and reversal, starts to move back up, but the recovery gets turned on its head.Â
- Extremely volatile session as both buyers and sellers get news to ponder and fight it out all day. In the end the uncertainty was too great and the buyers abdicated to the sellers.
- Good news and bad news on the day, and given all the uncertainties, the bad news wins.
- Jobless claims surge to 474K, but the real driver was the ECB.
- Trichet turns less hawkish, does not raise rates. Dollar explodes higher, Gold and silver plunge, and oil breaks below $100/bbl.
- Why gold and silver are selling off.  The dollar?  No, the real culprit is margin requirements.
- Diving oil prices are not a bad thing as homebuilder and transportation stocks show, but the root causes can be a problem.
- Now it is up to jobs to turn the next page, and it just so happens there are many stocks in very good position to move. Will they get the catalyst?

MARKET SUMMARY

Market shows as many turns as there were economic stories.

That was a volatile session. The market had as many turns up and down as there were issues confronting investors on the session. Believe me, there were a lot of issues confronting investors. Futures were down because the negatives trumped any positives out there.

There were some positives. Same Store Sales were quite good overall. Once again, consumers show that they are still out shopping and consuming even with gasoline prices approaching $4 per gallon. Of course that will make a change in the next few weeks. Oil took almost a $10 hit (and did take the $10 hit after hours). Wholesale gasoline prices fell $0.25 per gallon. That was related in large part to the story of general commodities. That story tied into the dollar which tied into bonds, and that tied into what Trichet and the EBC did (or did not do) and what they said (or did not say).

A lot of the negatives started with the initial jobless claims. They were over 400K for the fourth straight week. They came it at 474K, 74K more than expected. Adding insult to injury, the prior week was revised higher to 431K from 429K. Continuing claims jumped up 100K to 3.7M. The four-week EMA climbed to 431K+. Serious moves in the wrong direction. Even though the jobless claim is for April, we have had a month of these bad readings. It does not bode well for the jobs report. We may be creating some jobs, but we are losing them faster than we are creating them from the looks of the weekly jobless claims. Just another in a string of data that is not that positive for the economy.

The jobless claims went head-to-head with the Same Store Sales. There were some great numbers out there from M, LTD, and others that did a great job over the last month. GPS missed and guided lower; that seems to be one of its perennial problems. ARO sales missed the mark and it was down accordingly. TGT sales were up double digit, but it missed its mark as well. That is the bummer of great expectations. You can post a good number, but if you still do not top those expectations, you will not be treated very well.

Those were the warm ups. It was big news, but not the real news. There were other issues. Housing is in an official double dip. Home prices on the recent survey were down 11.5% in the past nine months. They dropped a whopping 4.5% over the last quarter. That puts home prices down 0.7% less than the lows hit in the downturn on March 2009. Now we have new lows and a double dip. This is what Case-Shiller predicted, and that is exactly what we have. 34.5% are in foreclosure. That is much higher than the 20-ish levels of last year. Housing was hard to deal with, but it is something we are used to.

One thing we are not used to is the ECB going soft on interest rates. Mr. Trichet and his cohorts have been talking tough and had started raising interest rates. Now the market reacted to something they did not do. On Thursday, that was not raising interest rates. More than that, Mr. Trichet left out the code phrase of the ECB using “strong vigilance.” There were calls that Mr. Trichet was turning into Mr. Bernanke, growing a beard and taking the calm, studied approach. I do not know if that is the case, but I do know that the ECB’s turn from hawkishness suddenly changed the field with respect to commodities, with currencies   you name it.

The dollar exploded higher. It was just trading at 1.49 Euros, and it closed out the day at 1.45+ Euros. Huge move, but it is a move that we expected to see (kind of). I thought the dollar would make a bounce from here and it did. We thought it would go to the 20 day EMA and it did   but it was just in one day. You would think it would proceed further given the unexpected turn of events from the ECB. If the ECB is suddenly worried enough about inflation and/or slowdowns to not hike rates, then what is it privy to? What is it seeing, and what does that mean for stock markets? That is what rattled investors. Being good investors and always wanting to run to the door first, they piled into the exits with respect to commodities and, indeed, with stocks. Stocks were very interesting on the session.

It had a cascading effect on all commodities. Those that had been rising lately got slammed. Gold fell to the 50 day EMA, and silver tumbled down, gapping below the 50 day EMA. It is down 30% just in the last week or two. Even oil took it on the chin, closing below $100 per barrel. Those charts are impressive. What is causing this? Yes, Trichet did have his impact. It just started the ball rolling. What else is going on?

In the US, the exchanges are implementing new margin requirements, and they are severe. They are on an escalating scale over the past three days. The last one will go into effect on Monday. It is basically taking the small guy out of the game. The margin requirements are what I would call onerous. That always happens when you have margin requirements raised   you take the small player out. Here we are trying to empower the small guy, and now they have them squeezed out.

I am not saying that is what is happening, but part of the collateral damage is that small investors will not be able to play as readily as they were before. Are small investors the ones who have been driving the commodity prices higher? Of course not. They have money there, but they do not have the huge money that drives these commodities as high as they have been going. It does give credence to the fact that there has been speculation driving prices higher.

Big brokerages and investment funds have been speculating on commodities prices and putting a lot of money in there. Now they have to meet more stringent margin requirements and they have to withdraw some of the money from those markets. We are seeing a 1-2 (and maybe 3-4) punch to those commodity markets. Maybe we are seeing economic slowing. We have the ECB worried enough not to raise rates. The Chinese stock market has been diving for a couple of weeks. The US is showing continually lagging economic data. On top of that, you have the margin requirements being hiked.

It is a convergence of negatives that is making these stocks fall. Do not forget, they have risen tremendously in the near term. If you get those kinds of moves to the upside, you will get some wicked moves to the downside. There are many things at work on the session. The confluence resulted in some very interesting action on the day.

I want to get back to the action on the session. Stocks started low, but futures were rallying toward the bell. They sold off mid-morning but then made a stellar recovery to positive, even on SP500. All day long, SP500 and the Dow   recent leaders on the market   were lagging. That was a great move, then stocks came back and tested the move and held positive above the early-morning peaks. Perfect action. Nice reach lower and reversal.

I said I was watching for this in one of the early alerts. It looked like we would get a selloff, and then the buyers would have a chance to make their play and rebound the market. Remember, we had a 1-2-3 pullback; we thought we could get another blow to the downside and then a reversal. It was playing out perfectly. When we saw the candle, a nice reach down and reversal, we were buying some of the positions we had wanted to pick up. It looked like they would hold and do quite well in the afternoon with this nice reversal in progress.

Unfortunately, it did not hold together. Did I say this session was volatile? I think I did. Stocks started nicely higher but then reversed. It was a precipitous drop into the last half hour of trade, and a bounce made it decent. It made the results not nearly as severe as they were, but they were not great.

NASDAQ dropped 40 points on this move. It managed to bounce and cut its losses, but that was a huge intraday decline. Of course it had a huge intraday move to the upside as well. NASDAQ, -0.5%; SP500, near -1%; Dow, -1.1%; SP600, -0.4%; SOX, +0.15%; NASDAQ 100, -0.5%. The SOX lagged horribly on the way up, so it does not have a lot of fluff to take out. It was not a great session. It was not a total selloff, but it was an extremely volatile one.

FRIDAY

Speaking of the jobs report, that takes us into the next session. Of course you have the nonfarm payrolls and the nonfarm private payrolls. Average hourly earnings and the average workweek we will really watch closely. The unemployment rate will be interesting to see. It is a government report, so who knows what will come out. We do know that jobless claims have been terrible. We know that ADP in the private sector missed its mark by 25K (175K versus the 200K expected). We know that housing prices continue to fall.

We also know that consumers continue to consume, and they do not do that unless they feel secure in their jobs and futures. That is a positive, and we could still see some job growth this that respect. The problem is we will not see that many small business jobs. Small business is not doing that well. This administration is anti-small business. It says it is for them, but it does everything it can to hamstring them. There are philosophical reasons for that, I think. People say I have conspiracy theories about it, but I just personally think it likes the big businesses. Big businesses like to control the economy and so does the government   at least this administration in the government. The easiest way to do that is to have big business in your back pocket (I am talking about GE and others) and then crush the smaller businesses.

Why would you raise taxes on companies that just make $250K dollars a year? If you make $250K a year and live in Washington DC, New York, Los Angeles, or San Francisco, you are not living very well and you likely have a small business. They will want to raise your taxes. On top of that, the government wants to raise your taxes on gasoline. We just have to say no to spending in any shape or form. Any increase in spending is just a nonstarter. That means they do not need any more tax revenue. They need to make do with what they have. If they have to cut spending on different programs, then so be it.

The only way to stop these guys is to say no to spending. I read a lot of economics, and I have studied a lot. I am not one of those who say if we do not raise the debt ceiling that we will have carnage. It gives the opposite indication to our trading partners in other countries; it shows we are serious about taking care of our spending problem. We do not raise the debt, so we will have to cut in other areas but still honor our obligations to other countries and ourselves. We will cut out those areas that are not necessary or will just make the tough cuts that we have to. Otherwise we will never do it. Never.

I laugh at the republicans as much as I laugh at the democrats because neither of them cut spending. I hear republicans saying they will only agree to raise the debt ceiling if they have an amendment that limits spending, or something to that effect. I have heard many different versions. Face it, we are not going to get an amendment to the constitution by the time they need to raise the debt ceiling. And we know what promises are worth. If they say they promise they will get an amendment for the debt, it is not going to work. Congress is in this problem because they have raised the debt ceiling as many times as the sun has come up over the last 20 years. Congress making promises is not going to do it. The only thing that will work is to just stop the spending. But I digress.

We have the jobs report on Friday, and we will see how it plays out. The market is in a situation where it needs some good news. It looked like it would make the turn on Thursday. It looks just perfect for the flushout and the reversal, but there were too many negatives and uncertainties. At the end of the day, the sellers won out. You were not going to have them sitting overnight ahead of the jobs report with the market moving back up. They sold it off.

If we get a decent report, maybe we will get a rebound. If we get a bad report, maybe we will get a rebound. It is a technical picture, and it looks as if it wants to make the move higher. If the news the bad enough, of course, it can break the trend. It can break down what the market has so carefully set up. We will see.

We have been exiting positions that are having a hard time holding the line. We have exited some positions that were still in good shape, but we just did not like the action on them. We have pruned our positions back. We have taken a lot of trailing stops and more gain off the table. We did it on the way up like we always do. We were selling when Bin Laden was killed. We were selling on the way up on the breakout. We have banked a lot of good gain, and that is what you need to do. That is part of the game. Someone was complaining about how I talk about how much money we have been making, but that is part of the game. We are here to make money. You have to think about making money, and you have to think about when you should take gain. That is why we were taking gain on the way up.

You take partial profits at important levels whether it is at 127% extension, at a resistance point, a trendline   you take gain at your targets. You take gain and then you let it run. Then if you get in trouble and the positions start to collapse on you, then you take them off the table. You have to think about making money. If you are not thinking about what you are doing and making good trades, then you will be in trouble. At the end of the day, there is nothing wrong with saying we had a great run. That is good but, like everything else in the market, what are we doing to do tomorrow?

Tomorrow we are going to look at the jobs report. We saw some great moves today   COH, CMI, FTNT, and SWKS. They were out there making their moves to the upside. If we see them make the moves, then we will start taking positions in them as well. We had a bit of a pullback here. It is testing support. If it holds, it could be a great new rally to the upside. If it wants to come back, then it will come back. We will finish taking positions off the table. We have some downside, and we will get some more. We will be making money on our SPY puts and others if the market decides not to continue higher from here.

It is a big day tomorrow. Lots of news still to digest for the market, but all is not lost. A lot of the commodity selling and the currency issues were driven by what the ECB said and what it did not do. It was also driven by dramatic changes in margin requirements. That resulted in dramatic changes in the positions investors can hold. Some of that is being rung out of the market.