Attention Shifts to Jobs Report

The market found a reason to move higher on Thursday, and it was the European Central Bank’s Mr. Draghi following up his comments to save the euro with more comments on how. The plan was laid out in his speech following their meeting equivalent to the FOMC. No change in rates, but plenty of offerings on how they will use strategic bond purchases to shore up the sovereign bonds when under attack unnecessarily. The problem… how¬†will they accomplish this and what are the parameters? The details are always the challenge, but the key for now was a plan was presented and Europe is working towards resolution. How and when are still part of the details to come. As a friend of mine always tells me, don’t¬†try to be logical, or you will never understand it. So, I will leave it at that, and await the detail of what it all means in the coming weeks and months. Accept the gift from the markets moving higher and move forward.

Speaking of moving forward, the jobs report… there is some optimism in the media about today’s numbers being better than the 125,000 expected. The reason is the ADP Report on Thursday showing 201,000 private jobs added and jobless claims fell again to 365,000. That was better than July and provided some hope for the government report to be¬†released this morning. The key in the data will be around the Fed. Why? if the numbers are good, they may delay the stimulus action in the next FOMC meeting. Thus, there is kind of a reverse psychology to the number today. Regardless, we will look for the number to be close to the estimate and for the data to reinforce the need for the Fed to provide additional stimulus. That is the hope from Wall Street anyway. Anything different and we may see yesterday’s gains erode.

In my notes yesterday I stated the transportation stocks were cause for concern relative to the upside. They bounced 1.9% along with the broad markets, but we still have to watch how they play our short term. A move back towards $93.50 on IYT, iShares Transportation ETF would be positive short term. The bounce did reverse the break from the consolidation triangle and does help the psychology for now. Fedex and UPS both have warned about the slowing in global shipping which reflects the lack of growth in the global economies. Thus, I believe this is still an important sector to watch relative to the upside of the broad markets.

Banks followed through on the break above resistance as KBE, SPDR Banks ETF cleared the $22.80 level on stronger volume. XLF, SPDR Financial ETF moved above the 15.20 level, and KRE, SPDR Regional Banks moved above the $28 resistance level. Thus, the financials liked the news from the ECB as the cloud hanging over the financial system was a big concern for US banks and exposure to the European markets. Watch the outcome in the sector as the leadership will be a key part of any leg higher in the broad market indexes.

There was plenty of cheering among investors on Thursday as the indexes finally cleared the highs and look to start a new leg higher going forward. One day does not make the move a guarantee, and we have to be on our best behavior relative to management of the risk. The stimulus offered by the ECB is still a plan and not an action taken. It is the next step in the process of taking action, but for now it is still just a plan. The Fed will play into the move next week at the FOMC meeting. If they don’t take action and we hear more promises from Mr. Bernanke and the twelve dwarfs, the reaction is not going to be positive. Thus, there is still plenty on the table to watch and be mindful of, but in the meantime we will take what the market gives and keep moving forward.

We added some positions to the models on Thursday and we adjusted stops to account for the move higher. Today promises to bring more excitement as we watch and act accordingly. Remember to start each day with a plan and focus on implementation of the plan.