Unemployment Rose More Than Expected – We Have a Head & Shoulders!

Yesterday, the market was able to shrug off a worse than expected ADP employment index. Either traders completely discounted it or they didn't trust the number. An early rally tested resistance at SPY 93 and the market gradually backed off in the afternoon. This morning, unemployment rose more than expected and employers cut 467,000 jobs in June. That was 100,000 jobs higher than analysts had expected and the unemployment rate rose to 9.5%. The job losses were widespread across all sectors. After the release, the market fell 10 S&P points. As I mentioned yesterday, continuing claims have been running high and I felt unemployment could be worse than expected. This morning, initial claims fell to 614,000. That is in line with analysts’ expectations. Continuing claims fell by 50,000 and that was better than expected. A consistent weekly improvement in this number would indicate that people are finding work and it would be a bullish sign. It is way too early to jump to that conclusion since it is only the third time we seen improvement this year. The unemployment scene is dismal, but the actual report has not caused a major market decline this year. I have been bearish during the last few weeks and each time the market starts to gain some downward momentum, it rebounds. We are below SPY 93 and sellers have the upper hand today. We are heading into a three-day weekend and volume will be light after the first hour of trading. Factory order will be released at 10:00 am ET and that could provide a small boost. Manufacturing jobs fell less than expected in June. Next week, the economic news and earnings news is very light. We will have 3-year; 10-year and 30-year bond auctions Tuesday through Thursday and interest rates will be the key market "driver". The actual amounts for each auction will be announced today. Earnings season will start Wednesday when Alcoa posts Q2 results. Analysts are expecting an overall 39% decline in S&P 500 earnings and we are likely to see many "beats". However, after 70% of companies beat their Q1 estimates, the market rallied and decent results are priced in. The S&P 500 has rallied 40% from its March low and we'll see if it has any gas left in the tank. As much as I would like to short this market, I have been burned on my last two attempts. I will sit today's decline out and I'll see if the move has any follow-through next week. A close below SPY 89 will convince me that a decline is in store and I won’t short until I see that support level fall. Expect choppy action after the first hour of trading. My gut tells me that this decline will probably find support throughout the day. . .

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