Market Update

TECHNICAL UPDATE – Friday 02 July, 2010 – AMC

Monday 28 June to Friday 02 July, 2010

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
9,686.48 -46.05 (-0.47%)
Volume: 199,355,421 from 262,824,114 the previous day (-24.15%)
Range: 9,614.32 – 9,770.87 (156.55 points)
Originally Posted by Conrad on Friday 02 July 2010 View Post
Hammer after a down trend. But one can’t seriously read into any sort of technicals just before something like Non-Farm Payrolls …

DOW made its lowest close for the year and broke below 9,700 in the process. It also achieve a second weekly close below the 50week SMA within the last 5 weeks. Still on weekly candles, DOW has completed a 3 Outside Down which usually promises more down side in the week to come.

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NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)
2,091.79 -9.57 (-0.46%)
Volume: 492,195,620 from 739,637,046 (-33.45%)
Range: 2,077.71 – 2,110.66

NASDAQ has broken below its neckline but the trend looks to be waning … for now. If the momentum chooses to continue after completing a 3 Outside Down pattern on weekly candles, we could be in for a spectacular breakdown this week.

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S&P 500 INDEX (SPX: CBOE)
1,022.580 -4.79 (-0.47%)
Volume: 2,995,417,200 from 5,447,925,200 (-45.02%)
Range: 1,015.93 – 1,032.95

Originally Posted by Conrad on Friday 02 July 2010 View Post
The S&P500 came so close to crossing over (the Death Cross – 200 over 50 DSMA) in the second half of the day and it won’t take much to make it happen on Friday.

The S&P500 is right at the point of no return on the Death Cross. As of Friday’s close, the S&P500 is only 35.10 points above last July’s close of 987.48. As with NASDAQ and DOW, S&P500 has also completed a 3 Outside Down pattern on weekly candles.

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Rather than a dovish or hawkish Non-Farm Payrolls report, we got a damn confusing one – the US lost 125,000 last month, the largest decline since October but the unemployment rate improved by declining from 9.7% to 9.5% … yup, confusing … maybe that’s why the market was so flat and directionless.

Quote:
BRIEFING.COM – Friday 02 July, 2010 @ 09:09 ET
The Labor Sector is Trending in the Wrong Direction

The momentum in the labor sector is trending in the wrong direction. Total nonfarm employment fell 125,000 in June, 25,000 worse than the Briefing.com consensus expected, after rising 433,000 in May. However, the drop in total payrolls was due to a 225,000 decline in temporary workers hired by the Census Bureau. Excluding those workers, total payrolls increased by 100,000. The major disappointment came in the private sector. After posting a surprising 241,000 gain in April, private payrolls showed gains in May and June of only 33,000 and 83,000, respectively. These last two months of private payroll growth are indicative of a jobless recovery scenario.

To make things even worse, those that still had jobs witnessed a 0.4% drop in weakly earnings as hourly wages declined 0.1% while the number of hours worked dropped from 34.2 to 34.1. The drop in hours may be a bigger cause of concern than the weak payroll growth numbers. We anticipated that consumer demand would remain strong through at least the end of the year and firms would need to increase production in order to meet that growth. The drop in hours suggests that firms are producing beyond current demand requirements, and, as a result, inventories may be stockpiling too quickly.

The weakness in the earnings data may be a precursor to further declines in retail sales over the coming months. The unemployment rate declined from 9.7% to 9.5%, beating the consensus expectation calling for an increase to 9.8%. However, believing that the rise in the unemployment rate is a sign of strength is a misnomer. The unemployment rate only decreased because there was another step down in the labor participation rate. The number of discouraged workers continued to rise and the labor force shrunk by 652,000 to its lowest level since February. If these workers had remained in the labor force, the unemployment rate would have actually increased to 10.1% and matched its recent peak.

So it was terrible news. The reason we didn’t tank big time was because of the lame excuse that it wasn’t so bad. But it wasn’t so bad only because the news reported it in a way that headline statistics were used to buffer the severity of the actual situation when the actual situation should be a lot worse – the unemployment rate should have increased to 10.1% if not for this statistical illusion.

The market is going to make the economy pay dearly for this illusion come Tuesday. When reality sets in and the joy of a long weekend is behind it, the market will react violently for being duped. Also, those who missed out on Friday because of they went on leave before the long weekend will be back with a vengeance. Its going to be an ugly spectacle.

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SUMMARY
As the U.S. market is closed today, the DMA will be back tomorrow BMO to complete the preview for the week.

In the mean time, for your information …

• In January 2007, I called a soft market by the end of Q3 that year and we got it.

• In April 2008, I called more down-side when everyone thought the down trend since October 2007 was done and dusted … and we went down some more.

• In July 2008, people saw the completion of three waves to the downside and called a bottom. I called a capitulation and a low of 6,000 when the DOW was at 11,500. They said I was mad.

• In October with DOW at 8,000, people called a bottom while I stuck to my 6,000 low within the next two quarters.

• In February 2009, everyone called for a repeat of a Great Depression with down sides at a ridiculous 4,000 while I told Adam Khoo to release “Profit From The Panic”, effectively calling the bottom at 6,500 or at worse, 6,000. The market rallied after hitting a low in March.

• In April this year at the ShareInvestor Event at Bursa Malaysia and at CIMB (MY) with G.M. Teoh, I called for a possible Head & Shoulders reversal and a major correction in May and got it – bigger than I expected, I must admit.

• After the Flash Crash of May during my TA Masterclass and at the WA Expo in Singapore, I called for the end of the third wave up since March 2009 and called for lower highs and lower lows there after.

Over the last 8 weeks, I’ve been telling my students this all this is going to get much worse before we get better.

Now, I am calling a return to the downside and the possibility of a return to recession by year’s end. A revisit of the 6,500 low is out of the question for now. But I will be keeping an eye out for that crucial 8,000 level from the “V” neckline between January and April 2009.

So there you have it. I am bearish. Now let’s do the deed.

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