by Keith

Yesterday I posted my thoughts on how I felt the market would drop for several reasons. The most relevant to this post was the release of job numbers. As expected, layoffs increased and unemployment is now at 8.5%. Despite an initial drop, the market did not react negatively to this news by finishing in positive territory. I find it frightening the recent trend in the market to shrug off negative information. This is especially disconcerting since unemployment numbers are traditionally one of the last numbers to buck the trends in a recession. Clearly investors feel that actions currently in place by the movers and shakers has “fixed” the situation, and are comfortable investing in the long term. Clearly we must act accordingly and focus on long term investment, since the short term implications of this are highly uncertain.

by Keith

For the sort of multi-day rally we witnessed today, we can normally expect to see some sort of recoil. In addition, we have seen a possible trend develop with decreases prior to the weekend. Job loss figures will be announced tomorrow morning, and I am not optimistic. I expect these numbers to increase from the previous month. Ultimately you must ask yourself how much weight the enthusiasm from earlier in the week will defend against bad job numbers? Myself being the pessimist feel I must guard against what is simply a rally in a bear market.

In many ways the market has been acting irrational these last few months, but in order to prove me wrong the market almost acted rational today.  The poor jobs report did for some reason provide a bounce at the beginning of the day so my prediction was partially correct.  However, it was the absolutely terrible report and the revisions to the previous months were nothing less than stunning!  As the day has continued on the market correctly identified the jobs report as bearish and has now lost about 2%.  If you sold on the rally this morning, as I did, the jobs report Friday theory worked.  Regardless, WFC was not the way to play the market these last few days, that was a bad assumption.

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Part of my theory on jobs reports and the stock market came true today and part of my way to benefit was wrong.  The ADP report suggested that 697,000 jobs were lost in February which is a staggering amount… but the stock market was up convincingly.  My individual play of WFC however failed miserably.  Not due to the jobs report so much as they were put on the ratings downgrade watch by some of the ratings agencies.  The whole financial sector was weak today in contrast to the market as a whole which was up across the board.

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Call me crazy, but with the jobs reports as bad as they are, you would think that the markets would be cringing every time that they are released.  It is also safe to say that there have been no upside surprises, so why has  jobs report Friday been the safest trade since the 3rd of October.  That’s right, the last time that the S&P 500 finished lower on a jobs report Friday was the 3rd of October, 2008.  I am not necessarily advocating going out and getting ultra long the S&P, but if you think there is a bear market rally coming, why not chose Friday as the launching point.  One of the stocks I particularly like is Wells Fargo, they have a huge new short interest that I think are late to the game and will want to get out at the earliest sign of a rally.  So this Friday watch the markets with the jobs report, I would love to see what would happen if we had a positive surprise in the jobs numbers, it could be one of the messiest upside days in the history of the market.

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