Jobs Report Pattern Set To Repeat – Market Should Drift Lower This Week

Posted 9:40 AM ET - Last week the market tried to breakout to a new high, but resistance held. In April, 288,000 new jobs were created and that was much better than expected. Stocks had all the news they needed to surge higher. In the last two months we've seen a pattern where the market rallies into the jobs number and it declines afterwards. I mentioned this in my comments last week and I also mentioned that this pattern was likely to repeat. This morning, the S&P 500 is down 10 points before the open. The jobs report looked good on the surface, but traders were able to see through the number. It was filled with seasonal adjustments and it was inconsistent with the recent rise in initial jobless claims and ADP's release. The labor force participation rate is near an all-time low. We need more than 300,000 jobs per month just to keep pace with new workers entering the labor force. GDP came in at .1% and that was dismal. The European Commission lowered its estimate for growth in the EU. They expect 1.2% growth in the EU during 2014. China's manufacturing PMI was soft and new home sales fell to a four-year low. Global activity is sluggish. Earnings season has passed the halfway point and the strongest companies have posted. This potential catalyst did not push us to new highs. Retailers will start posting next week and I am not seeing signs of pent-up demand. Last week, Panera posted a very weak number. The most revealing piece of information was that same-store sales in April were only up .4%. These terrible results were not because of bad weather. Stocks are fully priced at a forward P/E of 16. There is room for a correction. Last week the Fed continued to taper and this morning one of the Fed Officials (Fisher) said he believes that tapering will be done by October. This should put upward pressure on interest rates especially when combined with a better-than-expected Unemployment Report. Bond yields did not move higher and this suggests a flight to safety. The economic news will be relatively light this week. I believe we will see a gradual drift lower. The market did not breakout Friday and I still have my put positions. My stop is SPY $189. We should be able to test the lows from last week ($186). I will evaluate the news and the momentum. If the price action is choppy in light, I will exit my put positions. If I see momentum and we are easily able to challenge $183, I will hold onto my put positions and I will add. I want to see late day selling and follow through. If you do not own puts, consider buying some. The market should drift lower this week. . .

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