The highly watched and anticipated Jobs Report came out Friday morning. Folks were anxious to see if the economy is as strong as most hoped. The verdict was a poor one for the economy. The believers shot down. The job creation came in approximately 50,000 short. Not what Fed Yellen wanted to see, and not what the market really wanted to see, either. It appears to me that folks are more focused on a true economic recovery than worrying about one single rate hike from the Fed. With the economy struggling for growth it's clear to all that even if the Fed raised rates one time there's no way there would be a regular cycle of hikes for some time to come. At this point, the market may actually want this hike to come so it can get it out of the way.
The market is now focused on whether earnings can move higher based on the type of economic reports we're getting, and thus far it's not good. Earlier this week we saw a very weak ISM Manufacturing number. At 51.1 it is very close to recession, which is any number below 50. China came in the day prior with a number at 49, which shocked the global markets. They had expected a number decently over 50, and then we came in with a bad number. Today, the market hoped for a ray of hope with the Jobs Report, but it was a big letdown. Futures bounced all over the place, but ultimately went lower after the futures had already been lower ahead of the report. If we focus on jobs and manufacturing this week, the grade would be a huge F. We're headed in the wrong direction. It's no wonder the market struggled all day today. Just not too much good out there with our economy and the overall global economy.
The bear flag on the S&P 500 is from 1867 at the bottom to 1993 at the top. This is a nearly 6% range, and no fun whatsoever, since this offers the ability to have very powerful moves both ways that mean absolutely nothing. A drop of good news takes us up, while the reverse is true on bad news. The only thing we know for sure now is that we're in a new range, than the one that lasted for nearly a year. It'll be hard to get back 2040 any time soon, or the break down level of the old range. The new range of 1867 to 1993 is annoying just from the size perspective meaning; if you think the whipsaw was ridiculous in the old range, this one has the potential to be much worse. Huge swings can occur over several days, which will mean zero if we don't break above 1993 or below 1867. Lots of hopes will, and have already been, dashed once again. Same old wash, rinse and repeat.
New range, but with the same results. As the old “Who” song goes, meet the new boss. Same as the old boss. New range, but the same results. Day after day will bring new emotions that actually mean nothing relevant. Just please be careful to understand what a flag, whether bull or bear, really means. A directionless market within a defined range (1867-19930). DIRECTIONLESS within a six percent range. Lots of room for intense emotional responses. Makes for some really bad trading, if you get overly involved. Don't be that person. There are times when basically all cash is the way to be, and that can last for weeks. But to be blunt, sometimes for many months. Not something most, if not all, of you want to hear, but that's the reality of things. Just try to do your best to get through each day with the understanding of where we are in this market in the moment, and, therefore, not over play. Less is most definitely more.
So Friday, we saw bad news hit on the economy, but in the end it was just another casual-trading day inside the bear flag with nothing happening of any relevance. It may seem pretty bad, but it really isn't. It was just another day in the flag and right near the middle of the range. Some days in the flag rock up on news and some days rock down on news. Remember, a flag is a range. The market seems to have settled in to this range. If we blast through 1993 we should visit 2040, but that will not be easy. Below 1867 sees 1820, or thereabouts, where trend line support lives. We'll worry about exact levels if the bears can ever eradicate 1867. So what does this all mean? It tells me to tell you I think you would be best served in basically all cash. Do whatever feels right to you, but I personally think cash is good until things settle out over time