Off in the Distance, Something Always Awaits

After a largely trendless mid-March through April period in the broad market, the roaring rally late this week off of Wednesday’s sell-off reinforces the notion that declaring a major inflection point in a bull market is a uniquely difficult endeavor. At the same time, there remain plenty of sloppy charts and unhealthy breakout attempts, such as what we saw from Shutterfly on Thursday and Friday. Thus, being precise and disciplined are still necessary components of every trader’s strategy.

It may not seem like it now, but eventually we will see that multi-quarter inflection point, and whichever bears are still solvent will claim redemption. In the meantime, however, there is no excuse for not being thoroughly prepared for new stocks, sectors, and leaders which are likely to emerge if another leg higher is in the cards.

I will cover those issues, as well as a few short ideas, and much, much more in my Weekly Strategy Session, set to be published on Sunday.

See you there, and have a great weekend.

Felix Salmon, the finance blogger at Reuters, has a solid piece up today about the “painfully slow” albeit steady jobs recovery. 

Today’s jobs report was a solid one, and shows that the recovery, while not exactly strong, is at least not slowing down: Neil Irwin calls it “amazingly consistent”. Whether you look at the past 1 month, 12 months, 24 months, or 36 months, you’ll see the same thing: average payrolls growth of roughly 170,000 jobs per month. That’s not enough to bring unemployment down very quickly, given the natural growth in the workforce. But unemployment is coming down slowly. And at the rate we’re going, at some point in the second half of 2014 we should see total payrolls reach their pre-crisis levels, and the headline unemployment rate hit the key 6.5% level.

There’s a real human cost to the fact that unemployment is coming down so slowly, but there are lots of reasons why it’s very hard to bring it down more quickly. First and foremost, of course, is the fact that US GDP growth is mediocre, coming in at less than 2% per year over the past few years. That’s not the kind of V-shaped recovery which creates jobs. Calculated Risk’s justly-famous jobs chart shows just how bad the recession was for employment, and just how painfully slowly we’re scratching our way back: we’re more than five years into this jobs recession, and we’re still at the worst levels seen in the wake of the dot-com bust.

KEEP READING

There can be little doubt that bulls remain in control of the broad market, despite wild price swings throughout the spring. While energetic breakouts are still fairly narrow, if we see more underlying action like today there could be more upside fuel for the fire. How well this move is held into the close should be one indication into next week, as to whether the “sell in May” axiom is a no-go this year.

On the 5-minute SPY chart, note that we have had a gap-and-base day. The action was largely to be had this morning during the post-jobs number pop. I am watching 1613 on the S&P 500 Index to see if bears can crack it in the final hour, which they would likely need to do to get an ugly close.

Otherwise, bulls are still the clear victors, regarding the market as a general proposition.

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Well, it looks like CHDN is running away from the field higher into this weekend’s Kentucky Derby. As we are seeing in this market, extended stocks and sectors can become even more extended.

Courtesy of SB Nation, here is a solid preview of the big race:

The waiting and anticipation is over. Months and months of preparation, prep races and planning comes down to a 120 seconds of thoroughbred speed on the first Saturday in May. It’s the 139^th running of the Kentucky Derby, the “Greatest Two Minutes in Sports”, and for one horse and their connections, this race will be the highlight of their careers.

Let’s take a look at the field for the 2013 Kentucky Derby:

Grade 1 Kentucky Derby

Post Time: 6:24 pm Eastern

TV: NBC

Purse: $2 million (60% to the winner)

Distance: 1 ¼ Miles

1-Black Onyx (50/1): He’s not a speed horse but he likes to show a little bit of energy coming out of the gate, and there is very little room for error after drawing the rail. Black Onyx has scratched from the Derby. Alternate Entry Fear the Kitten will not run in the Derby because the scratch occurred after the deadline for AEs to draw into the field.

2-Oxbow (30/1): Given his flop in the Arkansas Derby and this inside post position, Oxbow will likely be sent hard by jockey Gary Stevens right from the gate.

3-Revolutionary (10/1): Looked fantastic winning the Louisiana Derby on March 30 and should be one of the main contenders in the final stretch drive.

4-Golden Soul (50/1): He’s finished behind a lot of horses in this field this past winter and spring, and he’ll need to get better in a hurry if he’s to win this race.

5-Normandy Invasion (12/1):Possesses a very strong late kick and prefers to do his best running during the last quarter of the race. If he can get a clean trip around the track, he could be a factor at the finish.

6-Mylute (15/1): Ran huge to finish second to Revolutionary in the Louisiana Derby but can he duplicate that effort in the Derby? If not, he’s going to struggle to hit the board.

7-Giant Finish (50/1): A late addition to the Derby field, this New York-bred colt is going to need some luck if he’s to pull a major upset.

 KEEP READING

If the global materials complex is going to find support at current levels, after quarters of underperformance, I am watching Caterpillar and Freeport McMoRan into next week to see how they negotiate the recent rallies up to their respective 50-day moving averages.

As you can see on the daily charts, below, both 50-day moving averages are still clearly declining, indicative of still-unhealthy charts. Thus, even if they have, in fact, bottomed, you can still expect random gaps and price swings.

An argument can certainly be made that bulls need rotation into the materials as the extended sectors become even more so. Eventually, gravity will kick in. The issue then becomes whether the materials/industrial complex stands to benefit, or instead continues on lower with all of the global slowdown implications.

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Much like Clarice Starling in the famous scene below from The Silence of the Lambs (1991) versus Buffalo Bill, this market has required agility and discipline on the part of virtually all traders, what with the wild price swings and failure to break down. You freeze up leaning heavily in one direction (especially short), you fall behind.