Don’t Trust This Rally – Look For A Late Day Decline!

Last week, the market took a nasty hit. In addition to the potential European credit crisis, economic conditions are deteriorating in the US. The ADP employment index last week showed slow private sector job growth. I trust their number because they are actually processing payrolls. However, the one bright spot was that the government's calculations showed a slightly better picture in the private sector. Friday's Unemployment Report was dismal and we lost 125,000 jobs in June. Most of the job losses came from the census workers who had completed their work. Today, ISM services dropped much more than expected. Analysts were looking for reading of 55 and report came in at 53.8. Over 80% of our jobs come from the service sector. Again, we have an inconsistency with Friday's Unemployment Report. It showed job growth in the service sector. There is so much weight placed on the Unemployment Report that I believe it is manipulated. We continue to lose jobs, yet the unemployment rate is declining. As workers give up looking for jobs, they are removed from the statistic. Conceivably, half of the nation could be unemployed and the unemployment rate would be decent if no one is looked for work. China also released two economic statistics last week that pointed to slower growth. Everyone is counting on them to pull us out of this recession and weakness in Asia would ruin that theory. This morning, we have a relief rally. The Eurodollar is strengthening and those markets are rebounding nicely. This is nothing more than a short covering rally off of a deeply oversold condition. There aren't any material news items to justify this rally. Light holiday trading will set in this week. The economic releases are minimal and there isn't much to drive this market as earnings season approaches. The market has broken major technical support on heavy volume. The credit crisis in Europe, deteriorating economic conditions in the US and China, the oil spill, European banking stress tests, financial reform in the US, upcoming PIIGS bond auctions and the potential for weak Q3 earnings guidance will all keep pressure on the market. This mini rally will do little to shake bears out of short positions. Today, we will get a feel for how aggressive sellers are. Once the market hits resistance, traders will quickly unload stocks. Today's rally feels "manufactured". I don't believe it will hold and I am expecting a late day decline. If the market breaks below SPY 103.50 today, I will add to my bearish positions. STAY SHORT.

Daily Bulletin Continues...