Blog Post On: 6/6/2010

The two factors that drove the market down on Friday were the Job Numbers and Hungary debt issue. Hungary has come out so that the comments "were exaggerated" as noted except below from Bloomberg: 

Bloomberg:
Hungary’s economic situation is stable and recent comments about a possible default were “unfortunate,” the government said, pledging to stick to the budget deficit goal approved by the country’s creditors.

“Any comparison with countries that have much higher credit default swap ratings than Hungary is unfortunate,” State Secretary Mihaly Varga told reporters today in Budapest. “The comments that have been made about this issue are exaggerated and if they come from colleagues that’s unfortunate.”

On the job market First Trust Advisor's mentioned that the sell off based on the job data was overdone.

First Trust Advisors:
"...stepping back from the abyss, and the emotion of the day, and thinking about the economy with a broader perspective suggests that these reactions to the data are not justified.  The May report was inconsistent with other recent economic and the labor market information.  The layoff monitor from Challenger, Gray & Christmas, reported monthly, shows that corporate mass layoffs have fallen substantially – reverse, upside down “V”.  In fact, mass layoffs show absolutely no sign of economic stress, and instead point to a solid job market."

Stock Market Timing Model (MTR-TM): Market Down Signal on 5/6/2010

• MTR-I:  Week over week (wow) -4.76%.
• RSI: 39.46, below 50 is negative for the market. Was trending up to 50 then reversed.
• MACD: -46.94. Below zero and trending down is "negative" for the market
• Volume: All major indexes posted a distrbution day on Friday.

Major indexes are all touching support. Traders will be watching this to buy on support. This depends on the flow of negative news.

Blog Post On: 6/6/2010

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Blog Post On: 5/31/2010

This week Decision Economics (DE) increased the chance of a double dip recession to 25% from 20% mainly due to U.S. export exposure to the Eurozone. DE goes on to say there may be up to a 20% correction to equities with the S&P reaching the 975-1030 level. (SP 500 closed at 1089 on 5/28).

One factor that is a cause for wonder for a damper on the economy is a policy toward off shore drilling. If BP continues to have issues taking care of the terrible oil spill and we see off shore drilling policies change oil will surely rally and put a damper on the economy.

Reviewing the MTR-TM and the major indexes the markets are in a down trend indicated by lower lows and lower highs. Until the downtrend line is broken the technical signals lead to further downside movement. Caution is key for any long buying at this point.

• MTR-I:  Week over week (wow) +1.56 but this is from a sharp move up and not a trend change.
• RSI: 43.79, below 50 is negative for the market. If we see RSI starting to trend back up toward and breaks 50 there will be less risk to buying long.
• MACD: -48.77, below zero is a negative for the markets.
• Volume: On up days the volume has been light. Friday with the market closing down the volume was moderate but a day before a holiday weekend it could expected.

 

All major indexes are in a downtrend with a recent bounce off of support levels.

 

The Advance/Decline Lines are all showing support of the downtrend and are not signaling an up move yet.  

 

From a longer term standpoint the MTR-EM shows that year over year (YoY) employment and real-wages are rising. This reversed a very negative trend and shines a brighter light for the economy in the next 3 to 6 months. This may be in part to temporary census workers. We will keep an eye on this trend for any changes to this trend in the next couple of months.