One of my favorite things to do is observe and sometimes laugh as market pundits (and sometimes that includes me) attempt to explain the reasons why the market does what it does. I woke up Thursday morning to S&P futures again moving higher by seven points and 10-year note yields above 3%. Lo and behold, the same folks who were calling for near-Armageddon last week now seem to think all is good in the world. The headlines read, “Unemployment Claims Drop More Than Expected … Market Looking Strong.” But is it … really?
The S&P was up 31 points Wednesday and is up roughly 60 points from its recent low of 1010 just a couple of days ago. When the the S&P was trading at those lows, the index was below the two standard deviation daily Bollinger band, an oscillator that many analysts and traders use to pinpoint overbought or oversold conditions, (in this situation, the reading was obviously indicative of an oversold condition).
Supposedly, the big catalyst yesterday morning was that first-time unemployment claims for benefits dropped 21,000 in the past week to 454,000, when analysts were expecting a more narrow pullback to roughly 458,000. First off, the weekly numbers tend to be extremely volatile and generally don’t tend to get a ton of attention because of their unpredictable nature and their high tendency for revisions. Aside from all that, this number is not great and is just a tad below what analysts were expecting; it certainly doesn’t strike me as earth shattering.
If you look at the weekly chart below (courtesy of Forex Factory), it is extremely difficult to find a trend in the past six months. Up to Feb 25 and through the April 1 bar, the trend seemed to be lower, but since then has been flat to slightly higher. One positive here is that the four-week average of claims is moving slightly lower, but again, I would be reluctant to call it a trend.
- Each bar represents one week. The right- hand side is the current week and moving to the left back in time for 1 year
- The yellow bars represent consensus estimates
Maybe, just maybe, the 121-point or 11% drop the S&P has experienced in the past 10 trading days or so was overdone? The S&P recently dropped 9 days out of 10, so maybe the shorts are covering? Before we get all excited again, watch out for potential technical resistance. 1,071 (one point away) marks a 50% retracement level from the index’s recent high to its recent low, and that may be a level to watch. Also keep in mind the 1,079 and 1,085 levels, which respectively represent the S&P’s 20-day simple moving average and a key Fibonacci level (61.80%). Sometimes, the market just gets a bit ahead of itself and maybe earlier this week, things looked relatively cheap.
We have not really seen much super-bullish news in the past couple days, although Thursday morning we had some good sales numbers from the retailers, driving many (but not all) of the sector’s stocks higher.
The bottom line is that the media wants headlines, but at times, the headlines may be misleading; make sure you read the fine print. Sometimes when sentiment seems extremely bad some contrarians may begin to examine bullish positions and vice-versa when sentiment seems overly optimistic. Major earnings are on the way next week, so check your portfolio for impending earnings reports that may affect your stocks.
No related posts.
Tags: bollinger bands, Economic Data, Jobless Claims, same-store sales, Technical Analysis, Unemployment
