US Unemployment Rises to 10.2%!

Darshan's Daily Market Ponderings

US Unemployment Rises to 10.2% - the Market Rockets. Why?

Monday 9th November, 2009

Morning all!

Before I begin - it's a Monday and you know what I must do for all you bulls leaving out in a fantasy world - that's right update our total US bank closures this year:

Another 5 down, up to 119 banks seized this year.

Right with that cheery news out of the way, let's look at what is happening in the markets and the economics of reality that are being ignored. Every week I tell you not to trade the news and every week I see people talking about how news should impact the markets....of course every week, I then have to show you some trades that totally ignore news. Friday was no different. The US Unemployment rate broke into double figures (I honestly thought they would never let that be published) and hit 10.2%. So technically all the bank stress tests done earlier this year, are now null and void. Why? Well they were done under the hypothetical condition of the unemployment rate being under 10%. The NFP numbers were not great either, with another 190,000 non-farm jobs lost in the last month. Wait, wait - it didn't stop there - Consumer Credit numbers for September came out at -$14.8B. So a great day of news on Friday - income down, jobs lost, credit down, unemployment up. It seems Friday was game, set and match for the bears BUT did the price on the markets illustrate any of this bearish news?

Of course it did not! We switched into the standard game play of squeezing the shorts. I had two options - one where the market went straight up to these levels and beyond and the other, where I did feel that we would drop down to test last month's lower numbers before this ramp. However, the latter did not work and the bear squeeze was on. This is something I have been talking about since the sharp drop on the US markets two-three weeks ago. I hope nobody got caught down there because you were warned. The fact of the matter is that you have to apply reverse logic to this market. The quants know that everyone would have jumped short on Friday out of fear and you saw a 100 point drop, followed by a 100+ point reversal within minutes. All they need to do is find areas where they can get the bears short and then trap them, with buy programs triggering their buy stops. Simple and straight forward.

Now this entire squeeze has been not only obvious in direction (the only concern for me was, what path it would take to get here) but also backed up by the USDX. Which as talked about all of last week, has now dropped to test the higher 74s. My new concern is that I still think the markets need higher before the waterfall and the USDX doesn't have much room to play with before it breaks important support at 74.75. So I am either wrong about the markets needing a new high or wrong about the USDX bottoming out. If it's the latter, then the bulls have just walked into a trap earlier than I thought and if it's the former, then the US Dollar has some way to go before bottoming out. All in all, we just need today to get out of the way. I am eager to see how we play out today because we've now had a whole week of rises on lower volume.

The futures have been ramped on the US markets and Europe is bright green. The FTSE 100 is being bouyed by a hostile bid for Cadbury's by Kraft (Yes that again!) for 300p a share and 0.2589 Kraft shares. I'm hoping that Cadbury's hold firm and tell Kraft to stick it. This also explains the strength in Cable but what will happen to the Pound, if the deal does not go through? I'm hearing rumours that the only reason the pair is so high, is because of this deal. We shall see. Personally, I'm not fussed - it's all about the price action and the charting patterns. Cable has the option to rocket to new highs and it also has the option to visit 1.50 before the year is out. The real question is, when will the USDX bottom? It's a question that can only be answered by the FED.

For today, we have two options:

1) We drop here to fill the gap from Friday's close and then keep heading lower to hit my lower targets (9600 on the Dow and 1020 on the SPX) over the course of the week...or...

2) We drop here to fill the gap from Friday's close, then sharp reverse up again...and we march onwards and upwards to new highs for 2009, before the big drop.

There is a case for both but it all depend on whether the USDX breaks through 74.75 or not. If it does that, then we can expect option 2 for sure. At the moment, it is all a bit unclear and in these cases I prefer to stay out. It's safer than gambling. The only positions I have open are a few longs against the dollar and a short on gold (opened on Thursday last week, as per blog post). I'm trailing stops on the former and the latter, I'm going to leave open until gold sees all the madness unravel from it.

If you are trading, then good luck!

Darshan

*The information contained on this website and from any communication related to the author’s blog is for information purposes only. The analysis and the market recap do not hold out as providing any financial, legal, investment, or other advice. In addition, no suggestion or advice is offered regarding the nature, profitability, suitability, sustainability of any particular trading practice or investment strategy. The materials on this website do not constitute offer or advice and you should not rely on the information here to make or refrain from making any decision or take or refrain from taking any action. It is up to the visitors to make their own decisions, or to consult with a registered professional financial advisor.

 

2 Comments

---

• Irthe Schurink | Nov 9, 2009 10:35 AM

  Dear Darshan -
  
  I am very happy you seem to understand all this! :-) What a world...!
  
  Glad you're upgrading my financial knowledge by posting your blogs here. I am not there yet :-) Keep up the good work please? Many thanks, Irthe

• Darshan Sanghrajka | Nov 10, 2009 08:32 AM

  Thank you Irthe!
  
  Always happy to help - never hesitate to ask questions! We've all got a lot to learn from each others :-) (ps...sometimes my blogs will be more economics based and other times, it will be more trading based - so if there is something that does not make sense, point it out to me for sure). Thanks!, Darshan

Topics

• Business
• Events
• Fashion
• Funding
• Gadgets
• Luxury Goods
• Management
• Networking
• Sales
• Sport
• Technology
• Travel

Contributing

• 
  Ron Immink

• 
  jackie smart

• 
  Laura Betterly