Traders,
We are certainly testing those resistance
areas and as much as we may want to break-out and move higher, we seem to be
facing some serious economic concerns, both foreign and domestic. We get a look
at the ADP numbers and also this Friday the Labor Department will report the on
the employment landscape. As we saw a climb in weekly jobless claims (some of
that is to be blamed on the recent winter storms) there is an expectations that
unemployment could rise for the month of February. Let's remember that the
market moves on anticipation - we have been warned both by the analyst and even
the government that employment numbers for February are expected to be weaker that
initially expected. If it is not as bad as our revised estimates - we could
climb a higher - as many expect to see a rather large rebound in March to make
up for the lackluster February. Certainly Friday could bring some volatility to
the market. Look at the ADP for a gauge in the change for the Labor number -
you know that everyone will jump on last minute revisions to their expectations
as soon as the ADP comes out. |
| ADP reports
20,000 job cuts.
|
ADP Employer Services reported that private payrolls
cut 20,000 jobs in February, the fewest in two years. That came in line
with expectations. Even plan lay-offs have shrunk. All this is positive signs
that we are bottoming, but I don't want to mis-read or spin this into a
recovery. We must remember there are finite amount of jobs and companies have
been cutting costs (laying off people) to keep margins in the black. We seem
like we are getting to the end of the road of layoffs and that companies are getting
to their maximum operational efficiency. Don't get me wrong the news is good,
but it doesn't mean we should start raising any victory flags yet. We need to
start seeing job creation. Unemployment is expected to stay between 9 - 10% and
real unemployment (those that are no longer on pay-rolls) is over 20%.
CNBC had an interesting discussion this morning - with a Fed President and
their guest Corzine (ex-governor of NJ) - pretty much they both agree - until
there is also some certainty in the political arena (as far as cap-n-trade,
health care, stimulus, regulation, and taxes) it will be hard pressed for
companies to plan any type of expansion or hiring (cost liabilities) - until
those uncertainties are settled. Business doesn't like too many uncertainties.
Conclusion - we are seeing a bottom in the cost cutting, but in a holding
pattern before any job hiring.
For now the futures are taking it in stride - slightly higher but didn't still
around the same area.
http://www.cnbc.com/id/35684296
|
| Costco
a survivor
|
|
Costco, the largest big-box retailer in the US, did well to garner more market
share as consumers look to cut costs and scale down. However, by keeping costs
low Costco did face a tight squeeze on margins. Their quarterly earnings
fell short of expectations. The problem is that increasing market share is good
if you can maintain average revenue per head, unfortunately spending
(especially credit spending) dropped sharply. With razor thin margins it is
hard to manage inventory and costs affectively. They did see same-store sales
rise 9% in February, which is a slightly better sign. This clearly shows that
the consumer is still, even at the discount level, credit strapped and in
frugal mode.
Expect the discounters to survive, but have a bumpy road until consumers are
able to gain both jobs and access to credit.
Investors are not liking what they hear and the stock is under pressure in the
pre-market, down $2 to $59.40. Expect pressure in the retailers - especially
the discount retailers. |
| Futures Pre-market
Where's the action! |
|
The futures are slightly up with ADP numbers, but there is caution in the wind.
We are at those resistance levels.
|
| Support / Resistance
Going higher or lower? |
|
We made a good run and are at those resistance levels, the move up yesterday
was weak. We might not see any break-out until Friday with the employment
numbers - if they can come in better than expected.
INDU 10,250 / 10,500 (Not there yet and yesterday ended flat
as the INDU faces resistance and having a hard time breaking out.)
NDX 1825 / 1850 (We are right there and trying to push
higher, but looks like resistance is standing tall for now.)
SPX 1115 (We are slightly above it, but it looks like
resistance could win out.)
RUT 650 (We have hit that top area as well here. Resistance
seems to be holding - for now).
|
| Conclusion |
We had a volatility explosion as we moved away from those
straddle strikes up to resistance levels. Yesterday was more of a pause up here
before another attempt to break-through. I think investors are cautious up here
and really want to get the employment data for February out of the way before
they make another attempt to push it higher. The Fed keeping rates close to
zero is fueling the risk-trade, but there is lots of political uncertainty in
regulation, taxes, health-care, cap-n-trade, and other issues before we see
robust expansion and job hiring. That will lead to growth in consumer spending
- for now it seems we are in a holding pattern.
Inflation talk is also making the airways as concern from
the Fed President (in his interview on CNBC) reflects that pro-longed low
interest rates is increasing inflation risk. Looks like we will have to wait till Friday to get a better picture of the jobs
situation. If it is bad, it will be spun that February had bad weather and
March will be a lot better. I think there is some truth to that, but we will
really have to wait and see. I don't see companies eager to add to any
liabilities in the face of so much uncertainty.
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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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