Stockscom Report for June 6/10
Market Synopsis.

The anticipation ahead of the payrolls data for the month of March was as high as we have ever seen. There was a sense that proof of recovery was absolutely required at this juncture and that nothing would be acceptable unless it was a blowout month. Numerous reports with expectations of 550K new jobs or more were being posted.

Unfortunately, the expectations were met but only on the backs of temporary census workers.

Indeed the headline number was truly large at 431K new jobs, however that number was composed of 390K net new government jobs and a net 41K of new private industry jobs. The government job category received a special boost by the 411K temporary census workers hired in May.

This report was a huge disappointment to the government in general and the Obama Administration in particular. President Obama made a vain attempt to put a positive spin on the weak data conveying his confidence in the recovery currently taking place, but this only wasted further political capital, an already dwindling asset in the aftermath of the disaster in the Gulf.

The markets were a far better judge of the numbers ruling them unacceptable or if not unacceptable, then certainly insufficient. The job growth that was planned and budgeted for by government bean-counters is nowhere to be seen except perhaps in government, which truly appears to be the employer of last resort.

In an ironic twist, the census workers in particular have been a difficult bunch to count. According to an article published in the NY Post, the government has been hiring and firing census workers numerous times ostensibly to raise the statistics for new jobs. Each time an employee is hired counts as a new hire even if the employee is fired once or several times. In fact, a person hired and having worked one hour in one month is considered a new hire. If the actual job numbers weren’t bad enough, allegations of mismanagement caused by new hires revisiting the same training session for each time they are hired, are rampant.

Analysts are left to wonder what, if any, numbers produced by government workers are reliable now.

Technically Speaking

The four major markets closed the week with a return to a very bearish stance. The drop for the holiday-shortened week ranged from 1.1% to 2.3% with the tech sector comparatively stronger.

On weekly charts, MACD graphs continued their renewed negative slant though they remain considerably flatter than is normal for such a long period of time. Stochastics have now descended to oversold levels but these being the weekly charts, there is still room to maneuver lower before reaching levels that would have us anticipating a rebound. The 25-week moving average was a noticeable resistance level this week as price failed in an attempt to cross over. Where once this level provided support, it now exercises resistance. Importantly for the broader indices, the 40-week MA is now coming into focus as a possible support level.

The daily charts were much more emphatic than the weekly charts with Friday’s drop the culmination of a modest retracement from previous selling. The sharp increase in trading volume coming at a time when stochastics had returned to near-overbought territory was a signal of a return to a selling stance. Investors proved to be invariably nervous about holding stocks and consequently offered them at reduced prices. In the process, the Dow Jones Industrials and the S&P 500 both closed below their May lows and are within a few points of their respective 2010 lows.

The tech sector has weathered the decline comparatively better. Both of the Nasdaq twins remain well above their 2010 lows and substantially above their respective May lows. However, both are evidently quite weak and we expect these indices to follow the broader sectors and fail at similar significant levels. It is worth noting that the Nasdaq 100 is the only one of the four major indices to close Friday above its 200-day moving average though it must also be said that the Dow Transports shares this claim as it sits just above its own 200-day MA. Interestingly, the 200-day MA now stands as a virtual wall in resisting efforts by the S&P 500 and DJ-30 to pass through.

Gold

Gold extended its bounce from the previous week and settled higher even as the US dollar strengthened lending credence to those believing that gold is taking on the aura of a currency. Unfortunately, the stock prices of many larger producers trailed the performance of the actual metal.

Stochastics on the weekly charts continue to drop and volume is compressing, which is a bullish characteristic. Similarly, MACD is stretching to a more positive curve signaling that the bulls remain in control.

On daily charts, the larger producers have seen their stochastics cross and turn lower after having reached overbought levels. Meanwhile trading volume on down days has tended to be significantly lower than on up days offering visible support to the bulls. Evidently the push back in price is being caused by an inflating value of the US dollar.