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Tuesday, June 7, 2016

Daily update 6/7 More on employment data

SPX tests its Nov. high.

SPX got almost 3 points above the Nov. high before selling off into the close.  That left us with a shooting star candlestick.  That is a potential reversal bar.  Coming on a retest it may be significant, but needs downside follow through.  What happens over the next few days is critical.   The breadth was +59%.  New highs were strong again at 214. 

The futures candles have upper tails the last few bars indicating some resistance in this area.  Based on the daily SPX chart shown above that should be no surprise.  Will the upper line hold as support now that it was broken?  It would be good for bulls if that happens. 

The green count slipped a bit today, but is still above 50.  This is an obvious minor divergence over the last few days.  That could become more important if tomorrow is a down day.

The bear market is about to end or get viscous.  If SPX fails to break out to new highs and stay there the market is highly likely to collapse.   Bulls have been patiently buying dips expecting more upside.  This market has made more attempts at 2100 then I can count.  A failure here seems likely to push some people into selling.  This is essentially a triple top here with the tops last May and Nov.  With high valuations and a weak economy the sellers may come out of the woodwork this time.  The bulls need to keep buying those dips and pushing higher.  I heard somebody on CNBC mention that people on the trading desks were saying there seemed to be no urgency for people wanting to get long.  I would be surprised if there was.  Which is why I expected this rally to fail at some point.  This may be the point, but the bears need to pounce.  A close back below 2100 might bring in more sellers then the last time that happened.  Who has the bigger hammer the bulls or the bears? 

I am not a big fan of the employment data in real time as it is a lagging indicator and highly revised.  I also wonder how accurate it is.  However, at some point in every recession the jobs data goes negative and stays there for months.  I don't know if the weak data for May was the beginning of that process or not, but I came across some data that indicates the weak report might not have been a fluke.

Temporary workers have historically started moving up and down before regular employment coming out of and going into recessions.  This makes logical sense as companies hire and fire temps before regular employees.  This chart shows the temp data has been weak for months.  This is clearly the longest period of weakness in this recovery.

The LMCI has been negative since the beginning of the year.  The most recent reading is the most negative yet in this recovery.  No sign here the labor market is going to turn up yet. 

Will the employment data continue to get worse?  It is a possibility.  At the very least the data offers no sign the economy is improving.  It could even be a sign things are about to get worse, but it is too early to say with any confidence.


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