- Jobs top expectations, but market response is less than welcoming.
- Stocks recover from morning selling, but the bid remains very weak.
- Economy so weak an ugly jobs report looks pretty.
- Economic ‘recovery’ a house of cards: stock market proves it with a crash after QE2 liquidity pump is turned off.
- Market is set to test breakdown, market should test the breakdown, but the action just does not seem right. With no QE3 market has no reason to rise. None.
- Use a bounce if it comes, prepare for more downside.

MARKET SUMMARY

A better than expected jobs report, but still a weak report. A weak bounce attempt as well.

With a jobs report that only a weak economy and a weary market could love, investors got something of what they wanted on Friday. It was not a great report at 117K jobs, but was better than expectations. The market actually rallied on the news well, it rallied for about 15 minutes before it rolled over and sold off with another massive decline. That was matched by a somewhat larger reversal that brought stocks back to positive, but they could not hold the move. They waffled, moved laterally, and then sold some into the last hour. It was a very underwhelming performance. A bit better on the jobs, but the economy is still very, very weak.

The indices were mixed. NASDAQ, -1%; SP500, flat; Dow, +0.5%; SP600, -1.5%; SOX, -2%.

As I watched the market action unfold on the day, I was struck by how weak the move was. When the reversal occurred on Wednesday, the stock market ripped back to the upside from the morning dive. Nice volume recovery. I kept saying it appeared as if the market was looking over its shoulder. There was high volume, a nice recovery to positive, but it just did not feel like a really strong reversal. Obviously that turned out to be the case as it market rolled over massively on Thursday. Friday it did not feel like there was the same fear in the market as it sold off. Maybe that is why we did not get a big, roaring recovery that surged to the upside. Maybe that is why we did not get the initial rally off of the numbers that the market apparently wanted in the first place.

All I can tell you is that the bid remained weak. There were some great stocks in position to move (we picked up a little CMG, for instance), but they found it difficult to make that move. Running in place, no traction, stuck in the sand. Whatever metaphor you want to use, it seemed to apply to a very sluggish market on Friday. Looking back at the week, the market exploded lower. It careened to the downside and broke through all near support. It managed to rebound on Friday off of another massive drop that took it to the November 2010 lows. It basically erased the second half of the run from August 2010 to early-2011.

MONDAY

There will be economic data without a doubt. We will have Q2 productivity on Tuesday. We will have the FOMC out with its rate decision. Obviously everyone will be looking to see what kind of changes they put in their statement, if any. They will grab ahold of that jobs report and try to say things look good. They do not want to come out and make too much of a change, but ultimately they have to implement QE3.

Wholesale inventories are on Wednesday. Yeah, yeah. Initial claims on Thursday. Retail sales on Friday will be key. Thursday we will also have a bunch of the Same Store Sales numbers coming out. There is Michigan Sentiment on Friday. Business inventories are always a sleeper, but it will be interesting. I am curious to see whether they rise or fall. This is one of those situations where if they rise, it is not a good thing because that would mean sales are down because the economy is slowing.

That is the economic picture, but what about the real world of the market? The market is in a position to rebound. The sentiment indicators and internals all suggest extreme levels that would push the market back up. The action of holding the November 2010 trading range and bouncing off of that would suggest the market wants to do that. The action on Friday was just sluggish, however. There was not a great bid, and it just did not feel like any kind of big reversal. We may not get that; we may just get a total dump down to that prior low. If that is the case, we will have a few downside plays in addition to what we already have, but it is not a great risk/reward entry point for the downside.

There was a tremendous dive lower, and it does not exactly give me warm, fuzzy feelings about initiating new downside at this point. If the market breaks, we will have a few to play. I would like to see that bounce to the upside. There is no economic reason for the market to bounce. Quantitative Easing is not in yet again. No reason to bounce other than just a technical move to bounce back up and relieve some of that pressure on the extreme numbers that the internals and sentiment indicators are showing.

Our strategy is to play some of the big names I have talked about. I would love to trade upside some of these really good-looking patterns that are holding well. We also patiently let a bounce run its course. Then we can get the best exit points on any plays we have that broke during the week and need to have some rebound to get them into a position of repair where there is a better exit point. Then when the move fizzles out it should at 1260 or lower then we will be preparing on the way up with more downside plays to take the market back down. That is not only to the November low but on down into this range from 2010.

It is not a great prognosis. I am not saying things are good. They are not, and you know that as well as I do. I have been talking about it for months, and it is all coming to fruition. I guess some would say ruination. It is not a good situation out there, and the wild card is the Fed with a new round of Quantitative Easing. Smarter people that me are saying it is coming. We just do not know exactly when it will get here. That is the wild card that could change the game. Until then, we have a market that has rolled over. Sentiment indicators are extreme. It wants to bounce. If it does, we will take advantage of it both to the upside and then to the downside.

Not a great prognosis. It is a long, hot summer. August is a bad month for the market, no doubt. It is living up to its billing. September is not great either. At some point during the traditional time of selling in the market and the traditional recovery period in the fall, the Fed will announce Quantitative Easing and it will have its effect. The market will miraculously rise in the fall as it often does. Maybe I am thinking of a fairy tale right now, but in any event, you see where I am going. It all seems to fit into place with these cyclical patterns. More than anything else, this proves to me that markets are based upon human rhythms more than any machines.

With that, have a great weekend. Hang in there. We will play the bounce and then make money on the downside again. After all, we did bank some tremendous downside gain this week. I hope you were in on it.