I recorded this short video Thursday and you can see what we are trading. WATCH IT NOW!
This morning we learned that 236,000 jobs were created in February. That was much better than the 170,000 jobs analysts were looking for. All of the economic releases in the last few weeks pointed to a good number and the expectations were high.
After an initial surge higher, stocks have pulled back. I’ve been mentioning that the headwinds will blow strong as the S&P 500 approaches its all-time high. That doesn’t mean we won’t break out. The market needs time to build strength and the puzzle pieces are in place.
Here are all of the economic releases that have recently exceeded estimates: GDP, durable goods, ISM manufacturing, housing starts, ISM services, Chicago PMI, ADP, initial claims and the Unemployment Report. Some analysts feel that the news is “too good” and it will prompt tightening by the Fed. Ignore those statements.
Last week the Fed Chairman said that quantitative easing will continue for a long time. They will also carry a huge balance sheet well into the future. Today’s Unemployment Report was encouraging, but new entrants into the labor force still outnumber job growth. We have to create 350,000 new jobs per month before we can get excited. The sequestration will keep that from happening in the next few months.
Government spending cuts will be felt in May and we need to have a full head of steam heading into that period. Economic growth needs to offset the impact sequestration and GDP will be lucky to hit 1.5% in Q2.
China will release industrial production, retail sales and CPI Sunday night. The PBOC tightened and I believe that number could be a little soft. The market will pullback and that will provide an excellent entry point. I plan to buy calls once support is established. On a side note, 60 Minutes ran an excellent piece on the housing bubble in China (March 3). I highly suggest viewing it on their website.
The job recovery and strengthening economic activity will provide a tailwind for the market. Analysts will ratchet up earnings estimates for Q1 and stocks will rally into April earnings season.
Credit concerns remain low and stock valuations are attractive. Any uptick in revenues will go straight to the bottom line.
I still feel the market has one more good push higher.
I don’t like the reversal this morning, but I know that the employment expectations were high. This rally will not get ahead of itself. Look for a pattern where we take two steps forward and one step backwards. Know that the bid is strong and pullbacks will be brief and shallow.
I have 25% of my call position on now and I plan to add next week. I have also been day trading based on the one hour range.
I’ve been saying this for many days. Time is the key. We need to mark time at this level before we can move higher. In the next few weeks I expect us to break out new highs and for the move to be sustained.
If you are trading horizontal breakouts, ride the momentum and get out when the move stalls.