Jobless Claims Return Positive Bias to Markets

Yesterday we discussed the sellers starting to take control of the direction, but today the buyers wanted everyone to know they are alive and well. As we discuss below the NASDAQ was the big winner on the day gaining 47 points or 1.2% to make ups some of the ground lost in the recent selling. The broad index opened higher and continued higher throughout the day. The leadership came from biggest loser… semiconductors, up 1.8% on the day. What was the catalyst?

It is important to remember the media is jumping on the bandwagon of valuation and a pullback for the markets. If they, along with analyst, continue to bang on the overbought story iit will become a self-fulfilling prophecy. There in lies the primary concern from my view. We have to approach this one day at a time and let this unfold. Still looking for the full story to unfold relative to the catalyst on the downside. Valuation is not a strong enough rationale for the investors to jump ship on stocks.

The FOMC minutes rattled investors on Wednesday, but that seemed to be distant concern as the jobless claims too center stage for the economic data catalyst. The hope for strength was driving investors on Wednesday. All this shows i the buyers are not dead yet. This is what we discussed last night… you can never count the buyer out. This is why I am emphasizing to take this one day at a time.

As discussed below the small cap index was the big winner gaining 1.8% on Thursday. That was enough to put the index back near the previous high. The end result of today was a shift from the negative sentiment that has been building the last few weeks. From my view we remain in a sideways, where is the catalyst, market environment. The key is to be patient and let all of this unfold going forward. Below we discuss the move of interest on Thursday.

Trend of the Market:

The trend of the market remain on the upside both short term and long term. The micro term (13 weeks or less) is where investors remain focused currently. Why? The media and analyst feeding the concerns about the current valuation of the market overall versus buyers appetite for risk. The VIX index shows the worry factor as low at this point, and reversed the volatility on today’s move higher in the broader index. We have all voiced our concerns about the movement of the market near term, but we have to let it play out versus speculating on direction.

Dow Industrial Index (DIA) – first time ever to close above the 16,000 level. The unexpected decline in jobless claims pushed the index through this level on the close. Does the move negate the downside move of late? Only time will tell how this all plays out as the battle of the Fed action continues. Looking for a follow through on Friday if this is the direction the major index is going to take.

S&P 500 Index (SPY) – Closed back at 1795 today to negate teh selling from the last three days. The buyers are still in the wings looking for the opportunities despite the warnings. As we referenced last night the downside move below 1775 would invite more selling… the buyers don’t believe the downside story yet… one day at a time. Longer term trend remains on the upside.

NASDAQ Index (QQQ) –  The index attempted to erase the three days of selling with a solid move higher on the day. Semiconductors gained 1.8% on the day and led the upside today. As we discussed last night the selling was not helping the trendline, but that has shifted at least for today. Internet, software, semiconductors and networking all contributed their share to the upside today. We continue to watch for some clarity in the direction department.

Russell 2000 Small Cap Index (IWM) –  Got the bounce off the 1100 support level today and back towards the previou highs at 1120 short term. Need a follow through on the upside or catalyst from the index to keep the upside in play short term. The shift from the selling over the last three days is something to watch. The longer term trend remains on the upside currently.

Sectors of Interest:

Semiconductors (SOXX) made a move below the 50 DMA Wednesday. In position to move lower, but then rises 1.8% on the day to erase the negative and move higher. Still worth watching as this all unfolds near term.

Dollar (UUP) if the shift concerning the stimulus outlook is truly in play from the Fed minutes Wednesday we have to look at the short euro play against the dollar. Watching to see how the dollar moves from here. Flat on Thursday, but holding the upside gains of late.

Treasury Bonds (TLT) – If the Fed is going to tighten the challenge is higher yields on bonds. The spike on Wednesday was big on the 30 year bond. 3.9% and a push back to the August highs. The close today was at 3.88% not giving up much and still worth watching the downside risk to the bond. TBT is on the watch list.

Gold (GLD) we have been saying gold is a short play versus a long play and Wednesday confirmed the downside risk in gold. The follow through lower on Thursday has validated from my view we are in tough spot going forward for gold.  GLL remains the play on the downside. DUST as short play on miners is of interest as well.

Financials tested the downside on Wednesday, but reversed with a positive gain on Thursday up 1.4% for the day. The regional banks were the leading sector up 1.9% today. This is a sector we own and continue to watch for the upside continuation. 

What to Watch Tomorrow:

Trading Notes tomorrow morning to set the tone for the trading day. Don’t get them? Send and email to don@jimsnotes.com to find out how to try them free.