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The market has been looking for a reason to rally and it got one today. March payrolls were revised up by 88,000 and 165,000 new jobs were created in April. Both numbers were much better than expected and the market is staging a bona fide breakout to new all-time highs.
It is important to keep your perspective. By any standard, 165,000 jobs is nothing to write home about. We need 300,000 new jobs every month just to keep up with labor growth. Regional activity readings have been light for an entire month and all of that evidence can’t be ignored. ISM services missed this morning. Don’t feel as if this is your last chance to get long. – it is not.
Central banks are printing money like mad and the dollar is strong on a relative basis. US 10-year bond yields are lower than the dividend yield on the S&P 500. Corporate balance sheets are much stronger than sovereign balance sheets and money is flowing into US equities.
Analysts lowered the bar for earnings season and 70% of all companies have exceeded estimates. However, year-over-year comparisons reveal stagnant conditions. Companies are not investing in plant and equipment (they have excess capacity), they are using cash to buy back shares. This is good for the stock market, but not good for economic growth.
Many traders believe that federal agencies are going to ride the coattails of the FAA and they will be able to postpone furloughs/layoffs. This was a public safety issue and I don’t believe it will spread. The sequester will have an impact in coming months.
Growth in Europe is dismal and conditions in China are slowing down.
I’ve been mentioning all week that the overnight risk is greater than the reward. I missed this move and I’m not regretting it at all. I believe the market could have just as easily sold off today on a bad number.
Now I have much-needed information. The jobs number in April was a seasonal adjustment (federal miscalculation) and conditions are not slowing down as much as the original number suggested. I can buy this breakout with a little more confidence than I had a few days ago.
I am not looking to load up on calls. I will buy some here and wait for an opportunity to scale in. SPY 159 is my stop. That was resistance and now it is support.
We will probably see laggards jump. Don’t take the bait. I don’t see any signs of a global economic recovery. Stick with the strongest sectors.
The main take away from today’s comments is this. You will have an opportunity to get long. This is not going to be a runaway market. There are stiff headwinds and today we got a favorable surprise.
I believe the move will continue this afternoon and it will last you more days. Take a deep breath and ease in.