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Friday’s release of the November employment report was in one word, shocking in its magnitude. The announcement that job losses totaled 553K was well beyond the most bearish estimates and left many analysts scrambling to explain the variance with their own estimates. What made this announcement even worse were the phenomenal revisions of the estimates for the previous two months. For example, the estimate for September was originally –159K, which was revised last month to –284K, but was given a final revision in the latest report to –403K amounting to an astounding increase of 153%. For October, the original estimate was –240K and this was revised in November’s report to –320K. A final revision of October’s number will be available when the December employment report is released in January.

The government pointed out that since the start of the recession in December 2007 (finally declared this week), there have been 1.9 million jobs lost with fully two-thirds of these losses occurring just in the past three months painting a very bearish cliff dive of jobs lost in the past few months.

The unemployment rate rose from 6.5% to reach 6.7%, which is the highest rate since 1993. Undoubtedly, this number will increase substantially before peaking and while some analysts were predicting a peak of 7.5% before the release of the latest report, most will now be forced to reconsider that level and adjust it to something significantly higher.

Earlier in the week, the Commerce Department reported that October’s new orders for manufactured goods declined 5.1%. Breaking down the numbers, we see that durable goods orders were off by 6.9% with transportation equipment leading with a loss of 11.2%. This was the third consecutive month of declines in orders and signals that production and employment are slowing in dramatic fashion.

The drop in new orders was perhaps less surprising having been reported after the November ISM index, which dropped to 36.2% from 38.9% in October. At 36.2%, this gauge is in unfamiliar territory and analysts have few historical examples to follow in a bid to ascertain the future.

Technically Speaking

Though Monday’s performance was pointedly bearish and prevented the stock markets from finishing the week with a gain, the rally through the remainder of the week was a noticeable sign that bullishness has returned, if only temporarily, to the major markets.

All of the majors lost ground but the losses were contained varying from 2.25% on the S&P 500 to an insignificant 0.66% on the Nasdaq-100. What is most noteworthy though, is that there was a steady stream of bearish economic news starting with the ISM report on Monday and ending the week with the shocking employment report outlining job losses of over half a million. Despite this barrage of bearish news, markets chose to ignore these details and buyers stepped up. A market that refuses to go down on bad news usually tends to rise. Thus we must seriously consider the potential for a rally starting here.

Stochastics on the weekly charts continue to be supportive of such a rally as all four major markets are bordering on oversold. However, the daily charts express caution at this point but only because all of these markets are currently overbought.

We prefer a wait-and-see approach given the precarious economic situation at the present time. Certainly stocks are relatively cheap by historical terms but that doesn’t mean that they can’t get even cheaper.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

We were exited from our gold positions at their respective stops as gold reversed course and declined quite rapidly. We also covered our short position in JWN as retailers began rallying. We prefer to keep the position in ARO open with the same stop as stochastics are sufficiently overbought to expect some return to the downside.

Portfolio Comments:

New stops have been added in bold to the list while others have been modified. Those that have blanks are being carried unstopped for now. Please see our complete list of stops in the table below.

List of Current Stock Recommendations:

Action Ratings. The following is the legend for designating immediate action
for our stock recommendations. The first is B, meaning the stock is timely
to buy but the case for doing so right here is not overwhelming. Either the
stock may have gotten ahead of itself and may be vulnerable to a retracement or
else the stock has been performing disappointingly but may simply be
regrouping. B+ and B++ indicate stocks for which there is a technical case
to buy now, with plusses adding weight according to how many there are, up
to a maximum of two. Stocks rated H are ones to hold, awaiting confirmation
to buy more or to sell. SELL, of course, means what it says. It seldom pays
to override this designation. In the case of stocks held short, the rating is S where positions should be retained. S+ and S++ indicate stocks for which there is a technical case to add to the positions with plusses adding weight similar to long positions. The maximum number of plus signs is 2.

N.B. There are no longer restrictions on foreign stocks held in Canadian retirement savings accounts.

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price