Friends
Well traders sure did choose a side yesterday. The Dow Jones Industrial Average was up over 219 points on Thursday as the bears were caught waiting for the “sell the news” effect and got just the opposite. The just released jobs number came in better than expected as 151,000 jobs were created and average hourly earnings were up slightly. The unemployment number is still 9.6%, but that is a reflection of more job seekers entering the market place. As we have discussed for quite a while now, creating jobs is still the number one thing to build confidence in the economy.
Early indications are that stocks like the employment news and coupled with Dr. Bernanke’s determination to create the “wealth effect”, traders caught on the short side will definitely be doing some soul-searching this morning. As we discussed earlier this week, the Federal Reserve is determined to provide massive amounts of liquidity via asset purchases (QE II), hoping to force money off the sidelines into risk assets (stocks, commodities, gold). Of course, the dollar continues to be pummeled by this action, which is exactly what the Fed wants to happen. Remember, as the dollar falls, our international Corporations become more competitive and our goods and services become cheaper overseas.
We will watch to see if stocks can hold on to yesterday’s gains. If the S&P 500 can hold at the 1220 level today, we may be able to set up for a new advance into the 1230’s next week. Of course, on any pullbacks (which will occur) we want to see if 1200 can become a new support level that stocks can rally off of. With less than two months to go in the year, left behind money managers are going to be attempting to make up for lost time. They did not get their “sell the news” pullback this week and have precious little time to wake up their performance shortcomings. As we said last week, it could be a very interesting time over the next few weeks. Traders have the Fed in their corner, the employment picture is slightly better and panicked money managers are desperately looking for performance.
With the Fed as the backstop, it is hard to imagine any pullbacks being anything but fleeting in the short run. The long-term effects, of course, is a whole other story that we will address in the months to come.
In the meantime, traders have the green light. Of course green lights turn yellow at some point and inevitably red. We’ll be here watching the traffic patterns for you.
Have a great weekend everyone.
