The fate of the market today -- and also by default our brand new Rydex positions -- will be decided by the monthly government check-up on employment. This is the single biggest market moving economic number, by the way.
It's interesting that this recovery -- dubbed the "best recovery foreign money can buy" by the Financial Times -- is just not producing any job growth. Indeed, the government's own biased-to- the-upside jobs report couldn't even manage to show any growth in the last 7 months. (They assume all sorts of job growth is created by small businesses every month....among other positive assumptions.)
This graph is a bit of a shocker if you're preaching strong recovery right here. There's money and credit sloshing around -- sloshing over the side, even -- but none of it is sloshing its way onto fertile ground, to create jobs. Last week I quoted the Chief U.S. Economist at Goldman Sachs, who said this economy needs to create about 200,000 jobs per month to sustain the GDP growth seen in the second quarter (which was a dubious number to begin with). So we'll see this morning how September stacks up, but the employment trend is just not good.
Continuing disappointment on the employment front could be the catalyst to send the market reeling back down towards SPX 970. If I'm reading this right -- and I like to think that I am -- then the SPX should quickly drop down to 970, a full 50 points from here. This would be a perfect "fractal" down, with the second 50 point drop matching that initial drop.
It would also be textbook for the market to turn around and head back down right at this particular spot, which is the exact 61.8% upside retracement of that fifty point drubbing.
The VIX has cycled through a short-term advance phase, and is now in position to flip back into a short-term decline phase. Really, it's been the behavior of the VIX which makes me think the downside has much further to go. We saw some real upside acceleration on the VIX during last week's selling, and that doesn't usually fizzle out quickly -- and upside momentum on the VIX is strongly associated with market sell-offs.
None of this is guaranteed, of course, but we've got a good set-up for downside continuation. Yet obviously there's a chance that the market can pop up further to the upside -- in which case we're going to quickly act to hedge our new Rydex positions, and even speculate gingerly on upside continuation.
I'm going to loosen our parameters slightly, as this is a whippy-and-trippy market, dead-set on shaking out everybody. If the market zooms up on the open over SPX 1024 off a "stronger than expected" jobs report, then buy the QQQ and SPY to de-leverage the Rydex funds intraday, and if the SPX can continue to climb up and over 1030 convincingly (not just by a few tenths), then take off the Rydex funds into the close and keep the SPY and QQQ for further upside.
If the SPX gets up and over 1030, then it's likely that the amazing reflationary upside juggernaut has some more climbing in store. Because, in the interest of full impartiality, there is a way to look at this quick 50 point sell-off as a 61.8% correction of the recent upside move.
So really, it's not a big deal either way. We're at an interesting and important crossroads for the markets, right now -- and we've got a game plan for either eventuality. That takes emotion out of the picture as much as possible. Now we simply have to execute. And that, after all, is the best and only way to approach the markets -- with discipline, conviction, and a flexible plan that's skewed in your favor.
Sentiment Dashboard
by Adam Oliensis
Note: Following up on yesterday's note re: the VXO/VIX data fiasco, my data provider has finally got it mainly sorted out. Consequently we have a slight discontinuous quantum pip back to the data series we were using prior to yesterday. And that should be the end of the whole issue. In terms of how to interpret the data there is no discontinuity.
SENTIMENT TANK: Drained 2 points to 21% full of negative sentiment
SHORT-TERM: Hourly gauge is continuing in an advance phase.
MID-TERM: Progressed 1 point to 76% on the decline side with confidence remaining at a low-ish bullish 2.
LONG-TERM: Regressed 2 points to 31% on the decline side with confidence at a low-ish 2 here as well. This gauge would have to hop back up over 80 to flip back into an advance phase.
BOTTOM LINE: The mid-term gauge is now virtually at the lower limit of the central yellow box in which it has been mainly living since June. If the short-term advance continues then it will tug the mid-term gauge over to its advance side. If the short-term advance fails then the mid-term gauge may make the run for the red 100 market.
The weekly pressure is now to the downside and it will take a hard run toward (and probably over) the recent SPX highs to reverse that. The longer-term momentum of sentiment is bearish now. (Note the series of higher highs and a higher low in the Sentiment Tank above.
Since the data has been jiggered again (and for the last time) here's a view of the tank normalized over the past year and plotted against the SPX.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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