Darshan's Blog

Darshan's Daily Market Ponderings

US NFP Surprise Good or Bad?

Friday 4th December, 2009

Morning all,

Ah it's one of those days, where you begin writing a blog and then everything you write, needs to be dropped because something random happens. The US Non-Farm Payroll numbers were predicted to come out as over 125,000 job losses in the last month. Goldman Sachs went even lower and predicted a drop of 100,000. The real number just came out at -11,000, while the Unemployment Rate dropped to 10.0%. What is going on here. How has there suddenly been a job recovery in the last month? Considering that the average losses over the last few months has been 135,000. I suspect, no in fact, I would put my house on it - that the number gets revised next month. Something just does not seem right. Every other data set this past month, has shown contraction in labour from key sectors and yet we get this. As great as it is, it's just a bit suspect. I am going to check out the figures and work out what the game is here - and let you know over the weekend. In the meantime, let's just see where the market is going for today...I just want to get this note out before you all get caught in the games being played before the market opens.

First of, where is the dollar going? It doesn't know whether to rally on the fundamentals or drop on the pro-risk trade. I genuinely think the market has spiked on this number but the risk is that the market is seeing good news as bad news; It means the FED has more reason to withdraw the liquidity and perhaps even raise rates. So in a roundabout way, the risk trade is in danger. The SPX will still have resistance at 1121 and that might provide a chance for the bulls to take profits. Either way, selling with a stop above 10500 and 1114 on the SPX has worked really well this entire week...the markets have just not sustained rises above it, as the weekly downtrend line from the October 2007 top, is providing the bulls with a resistance worry.

The other issue is that the USDX has yet again bounced off the lower $74 level but for it to really sustain rises, it needs to break over the $75.50 level and for a breakout it really need to shoot through and stay above $76. I am not sure it has the strength to do that just yet but it's getting there - we now have quadruple positive divergence on the weekly charts - that's pretty worrying for anyone short the dollar. I know I have been saying it for weeks but so far, we have held the $74 level and each time, a bounce has led to a swift risk reversal in the markets. In fact this is precisely what happened yesterday, providing us with a bearish reversal day - which could be negated if we break above yesterday's high. Essentially the stage is set for surprises either way and well, the biggest moves happen when you least expect them.

So with that technical claptrap out of the way (Don't worry, I'll be back on it, in just in a minute!) - let's just look at where we are generally this week; It's been a week where a lot has happened and yet a lot has been ignored. Dubai is a story gone on holiday, North Korea and it's currency devalution wiping out savings - is also in a silence vacuum and you can add to that the whole issue of some US states having to borrow money to make unemployment claim payments. All in all, it's been a rough week for the global economy but hey, that's yesterday's news right? Of course, after all it seems Federal Reserve Chairman, Ben 'Papa Smurf' Bernanke - although being grilled by the powers that be, will most likely still be reappointed. Of course that is what happens when you use the words "If you change Fed Chairman in the middle of this financial recovery, you will see the market collapse" - he is pretty much guaranteeing his reappointment. Why President Obama is going to allow this, I have no idea. Specially since, the latest banking figures show that banks are now holding over $1.2 trillion in reserves - their hoarding seems to be growing on a daily basis. Fabulous.

Of course add to Bernanke's views that he is the superman that has saved the world - and you can't help but laugh at the amazing picture he is painting for himself. I mean just because he studied what happened during the Great Depression for his thesis, it does not mean he can use the current mess as an experiment, to see if his thoughts are correct. Nothing he has done has brought about sustainable stability or growth. Nothing. I mean for this, we only need look at yesterday's ISM Non-Manufacturing numbers - which dropped below 50 again and came in at 48.7 vs expectations of 51.6 - thus showing contraction all over again! Still, I fear that the NFP numbers out today, will now make him look great and his reappointment will go unchallenged.

Stay safe and just keep an eye on the dollar. Once it reaches 75.50 - we will probably see it pull back and the market rise from there. That is the only clue you need.

Let's stay nimble now - and don't get stuck on the long side of the market - I feel something fishy is going on here and we may have our final rally next week but a correction may appear before hand. Interesting times hey!

Happy trading

Darshan

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