Traders,
Yesterday the market saw the hidden volatility rear its head and the market sold off hard and fast. The one-two punch was the jobless claims numbers - which came in worse than expected and that had many concerned that the Labor employment numbers for January were going to be much worse. However, I think the real impact was the realization that sovereign nations are facing significant problems.
Traditionally there is an arrogant nature of the citizen of a nation that their country can't go bankrupt. They ignore Zimbabwe and Iceland as anomalies and what happened there could never happen in their own country. Their faith remains strong and their blind need for government to take care of them in a time of crisis is at the core of their belief. But Zimbabwe and Iceland are not isolated incidents, Greece and now Spain are reflecting cracks in their own national debt and deficits - but were better hidden as they shared a common currency (the Euro) - which allowed stronger nations to cloak the problems of individual nations. Even in our own country citizens, who once thought little of what Debt and Deficit mean are slowly awaking to the math that clearly shows that this nation is soon passing a tipping point in which we are not able to even collect enough taxes to pay the interest on our debt, yet we expand our spending. "Tea Parties" which the media initially spun as Right Wing isolated events are expanding and it is no longer becoming a Democrat or Republican finger pointing issue - but now the citizens are actually coming to terms that sovereign debt DOES HAVE LIMITS! I think for the first time in a long time, it will not just be jobs that drive voters to the voting booth, but also how much more debt can we burden a nation with. Spending (regardless if taxes are raised or not) has to be reduced.
I feel like the nation is slowly awakening to the concern of national debt and deficit, they still are not awake to the full impact and eventual implosion that can happen - but they are getting there. Their faith has been shaken and we need to turn this ship around - now - not tomorrow.
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| Unemployement
half-full or half-empty? |
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Yesterday we got a scare with the jobless claims and the moving average heading higher - that raised the alarm for this morning's Labor numbers for January and revisions for last year.
This morning the numbers came in lower than expected as payrolls fell 20,000 last month (they were expected to increase 15,000). The good news (supposedly) was the unemployment dropped from 10% to 9.7% - beating expectations that it would inch up to 10.1%. We should be happy that unemployment fell, but why is there not more cheerleading? The problem is that many are falling off of payrolls and still haven't found a job. These "discouraged workers" (people that were on unemployment benefits, have fallen off the benefits, and still don't have jobs) has increased. The sad fact is that slapping labels on the numbers like "discouraged workers" doesn't change the math that more people are not working. Remember that the 9.7% is only measuring those that are collecting unemployment benefits, it is not the real unemployment rate. The "discouraged worker" number increased to 1.1 million in January from 734,000.
The revisions for December were raised to 150,000 jobs lost vs. 85,000, but November showed a gain of 64,000 vs. 4,000 (however this is traditionally the seasonal affect of temp work for holiday sales). The bigger concern was the net revisions of job losses since the start of the recession, which was significantly worst as it was raised to 8.4 million up from 7.2 million (that is over 1 million people that lost jobs that the Labor Department missed counting since the start of the recession).
The government is helping, as they show a significant increase in hiring - primarily for the 2010 Census.
For now - it is a mixed message. The recession was worse than what the Labor Department reported (by over 1 million jobs lost), those collecting unemployment benefits have decreased. Claims are up and unemployment was up in January.
The futures have come off their lows and more eyes are on the drop in unemployment to 9.7% - a little relief?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMgidOoKS.dI&pos=1
http://www.cnbc.com/id/35254420
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| Futures Pre-market
Where's the action! |
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Futures were under pressure prior to the unemployment numbers, but that 9.7% is bringing a huge relief as it was expected to 10.1% is sending futures higher.
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| Support / Resistance
Going higher or lower? |
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As I mentioned we were at a pivot point - and I thought we would move more today than yesterday - but we moved and hard!
INDU 10,000 / 10,250 (10,000 is a key support - futures pointing to a higher opening.)
NDX 1700 / 1750 (We broke down through 1750 - but we need to close above it to see any hope of improvement.)
SPX 1050 / 1100 (Another area that is wide in volatility and not clear as to how strong support is - a climb above 1,100 to see some level of relief.)
RUT 600! (We broke down through 600 and that is a bad sign for the broader market. To get back above the 600 area to close the week would be a helpful sign.)
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| Conclusion
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Watching the European stock markets get clobbered yesterday as more concern about sovereign debt is creeping up, how many more nations are having problems, Ireland and others could be the next wave of losing their coveted credit ratings. Greece has run out of equity to pledge to borrow money and are scrambling to figure out how to get in front of the debt/deficit train. Some economist has pointed out that Iceland was the "canary in the coal mine" and showed that other European nations are at risk. The argument was made that Iceland's cracks were revealed - not because it operated any differently than other European nations, but rather that it continue to use its own currency. It has been argued that the Euro has been able to mask mounting debt/deficit problems among nations that share the currency and now we are seeing Greece and Spain crack and there are several other nations that may also be worse off than initially thought. I don't know what it was this week, but it seemed like the world began to (finally) take notice. That also brought concerns to our own shores - is the U.S. any different than those other nations? No doubt that the faith in the western's governments ability to manage their debt and deficit has shaken. Maybe Roubini's warning yesterday has more merit and should not be over-looked.
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| Author |
| Michael Williams has 20 years experience as a institututional floor broker and options market maker. He is a partner in both Silexx Financial Systems (a trading software company) and Kinetic Strategic Group (a private investment firm). He co-authored the book "Fundamentals of the Options Market" a McGraw-Hill text and has lectured throughout the country on Options, Risk Management, and Volatility. | |
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