Busy Week of Data Ends with the Jobs Report

Draghi disappointed the world with his comments and lack of action on Thursday as the head of the ECB failed to take any action. The initial reaction was more of astonishment by the media and analyst. They all attempted to read into his statements following no changes in rates or how the ECB would proceed. Thus markets erased most of the premium that was put in place last Thursday and Friday following his we will do whatever it takes comments. By the end of the day the glass was back to half-full as the talk centered around September, and action by the Federal Reserve and future action by the ECB as they worked with the EU to accomplish the goal. Once again investors talked themselves into believing Paul Revere, the stimulus is coming, the stimulus is coming. The day ended by erasing some of the losses and a positive twist being spun on a negative day.

Today we face the infamous jobs report. It is almost as if the report can’t do anything wrong at this point. If it is really bad, it will be good for the stimulus story in September. If it is good it will help as the markets bounce from and take into consideration the other data that was better like retail. If it is in line with expectations… great the stimulus is still in play. The ISM Services data is out today as well and it has the same sentiment hanging over it. The two week momentum to the markets has been stimulus, and for now that remains the story. Thus we have to put all the news and data in perspective of what it means for stimulus. It is times like this I throw my gold clubs in the trunk of the car and head to the course and hit golf balls, talk about the Olympics and enjoy the beauty of the outdoors.

I would like to say we are heading lower, but as stated in the video updates last night, it doesn’t feel that we are. I know you are supposed to be focused on logic, charts and the facts in front of you, but this market feels like it is not going to sell off regardless of the data or facts… as long as the stimulus story is in play. With that in mind here is what I am watching today:

  • Dividend stocks remain all the rage among analyst. The push to buy these stocks continues to be the story, regardless of valuations. I don’t disagree with the premise of owning these stocks, but you do have to manage the risk of the trades. If you buy ConnocoPhillips for the 4.8% dividend, but the stock falls 10% in value, what have you really accomplished? It is understanding the risk as well as the reward of these stocks. That said, I do like the utility sector for the very reason of a 4% dividend and a positive outlook going forward. We continue to accumulate positions in the sector on the pullbacks. XLU, SPDR Utility ETF tested support of the up trendline and the 30 day moving average, which has been support during the uptrend, on Thursday at $37.20. I am looking for the entry point to add to my positions.
  • High yield bonds are still trading at a 610 basis point premium to Treasury bonds and they remain attractive as long the equity markets stay intact. Looking at a chart of HYG, iShares High Yield Corporate Bond ETF the resistance at $92.50 remains in play. If we break above this level that is a positive for the fund. Watch to see how this plays out for an opportunity to add to positions.
  • Energy pulled back in response to the news on Thursday. If the stimulus momentum remains this is still a sector to watch. The volatility is in play, but the upside relative to the downside risk is worth the opportunity.
  • Financials, likewise remain volatile, but they also provide a solid upside opportunity if the stimulus mojo stays in play. If you look at a chart of the Russell 1000 financial index 822 is resistance and a move above that mark would be positive for the sector.
  • Retail is in play relative to the same store sales data. This is a stock pickers sector, but don’t count out the consumer just yet. The business spending has been less, but the consumer is alive and well. Watch XLY and XRT to bounce above resistance short term.

This has been a busy week for data. More today as we stated above and we will watch the outcome. Be patient and take what the market gives. Play golf if you need to, but don’t force any trades and don’t ever believe you know what the market is going to do short term.

One final thought, the Fed acted the last three times relative to providing stimulus when the market corrected. In other words, the market had big sell offs or retractions in the summer of 2009, 10 and 11 before they put some type of stimulus in place. Are they going to wait for the same thing this time to confirm they need to act? Just another twist on the outlook for the stimulus watchers.