Will we get a Christmas Rally this year? The market is still struggling with resistance levels and seems to be taking its time about progressing towards the next move higher. Scanning charts you can see more and more stocks or ETFs setting up in nice consolidation patterns to break higher (assumption), but time is getting shorter if we are going to take the next stage of the progression in the move off the November 15th low and rally into the Christmas holiday.
Friday investors received a gift in the jobs report with 146,000 new jobs and the unemployment rate falling to 7.7%. It was interesting to see it didn’t provide the stimulus or catalyst to push the indexes through some key resistance, with the exception of the Dow Jones Industrial Average. Maybe the Michigan Sentiment dropping had some to do with the outcome? All of the economic data last week provided mixed signals on the economy. The manufacturing number showed more contraction, but the services number continued to show expansion. The point being, there is a lack of faith in the numbers being reported on the economy, and it may be keeping a lid on the upside short term.
There is some worrisome components to the job report for those who care to read it. The average hours worked remains at 34.4 hours. That translates into a stagnate market for jobs. Unless the average work week is increasing there is no stress from employees to have employers hire more help. Employment rate continues to fall as less people look for work! This has been the trend for at least the last year. The mind boggling number is that the labor force has declined to 63.6%. That translates to 36.4% of capable workers are not working? WOW! That brings to mind the quote, “if you pay someone to do nothing, they will do nothing.” The benefits from the government are better than working for most it appears. We are not giving people incentives to work, we are giving them money to do nothing.
There is talk of the Fed providing more stimulus in the form of QE4 this week at the FOMC meeting? Is there anything they would do that would provide growth? Not likely from my view and the meeting will be a non-event or it will provide a downside catalyst as investors realize there is nothing left the Fed can do. Sometimes reality is an ugly thing to accept.
As we start a new week of trading it is important to be patient and let this consolidation phase play out. If we break to the upside the Christmas rally is in play. If we move lower the Grinch may steal Christmas. The sectors to watch as we start the week are technology (XLK), financials (XLF), industrials (XLI) and consumer discretionary (XLY). They need to lead the move higher, and if they fail to do so, I am of the opinion the Grinch has the upper hand.
There are trades setting up, but not much more in terms of the longer term view. The lack of expanding leadership is a concern for the outlook and that keeps me cautious here. You take what the market give versus forcing trades. Remember our theme… one day at a time.