A Vote To Not Pay The Bills

Futures are down a decent amount on the “no” vote out of Greece. We are being bombarded with “what now” questions but think we just update you on everything we have been telling you. Please do not think markets may be heading down out of nowhere. We have been writing to you about the deterioration in the market for a very long time. There have been plenty of times in the past few years that the market absorbed all kinds of bad news and still went higher. But when markets are already in trouble, it does not take much to touch off selling. Remember, it is not the news, it is how the markets react to the news.

We have been warning you for many weeks and months that despite major indices at or near their recent highs, we have been very concerned about what was going on underneath the hood. There have just been a ton of negative divergences that almost always come back to eventually haunt the market…namely that over half the market was already in their own private bear market. Every week, we would write to you the long list of sectors that were acting downright horrid versus the market averages. That list has been getting bigger, not smaller. And now, this past week, the action only worsened the market and our outlook.

For starters, we are now counting less than 4 out of 10 stocks in sound technical shape as things deteriorated again. On top of that, we are seeing nothing coming to the fore. In other words, we are finding no other areas turning the corner to the upside but we are finding more areas joining the ugly party. To make matters worse, our proprietary sector by sector analysis has the market down to a select few areas that are still working, namely areas that have had a bunch of mergers. That short list is: Banks, Biotech, Housing, Insurance, Investment banks, Managed care, Oil refiners, Regional Banks, S&Ls…and that is about it. Oil refiners broke out of range in the past week. We need not list the negative areas as it will take up too much space.

To add a little fuel to the fire, there has been too many IPOs, too many secondaries, margin at all-time highs and massive insider selling, all the things that typically occur in the late stages of a market move. One must also not forget we have not had a bear market in over 6 years nor a correction of consequence in almost 3 years…brought to you by the maniacal money printers at the central banks that have refused to let the markets trade on their own two feet. So time-wise, we are way overdue.

What will we be watching for?

For starters, we will be watching to see which fedhead starts yapping about no rate hikes or for that matter, the potential for QE4. It is not out of the question as when things get hairy, this the fed’s default mechanism.

We will be watching for some sort of emergency deal with Greece…though it will again be meaningless.

Technically, we now have to watch something we haven’t had to watch since last October…and that’s longer term 200 day moving averages as well as important support namely DOW 17,579…S&P 2054 and then 2039. The NASDAQ has the best relative strength with support first at 4974, then 4888 and then 4825.

As far as Monday, ask us at 4:01. There is just no way of knowing as we expect a lot of talk, a lot of noise and an occasional yapping out of the fedheads. Markets opening way down give them the chance for a large reversal. We are not predicting this…just outlining the potential. We have seen many reversals on bad news many times before.

As far as Greece, what else is new? The Greek people voted to not pay their bills. For us, the issue is not really Greece. Eventually, something was going to give. The real issue is that this potentially exposes all the debt and leverage throughout the world. It exposes the utter stupidity of holding up things that should not be held up. Just who has been continuing to lend more and more money to Greece? Remember, it is never a problem until the market says so. Markets may just be starting to yap.

As far as China, leave no doubt they are targeting markets as a 100% move followed by a 30% correction has them having fits…so over the weekend, they just come up with more measures to to try and rip their markets to the upside. It is amazing they do not understand that it does not matter what they do in the short term. If the markets will want to go lower, they will go lower in spite of any measures…eventually. And eventually will always be painful.

These 10 Economies Will Be the World’s Worst Performers

Source: http://www.bloomberg.com/news/articles/2015-07-01/these-10-economies-will-be-the-world-s-worst-performers-by-the-end-of-2015

Why It’s All About the Model X for Tesla

http://www.bloomberg.com/news/videos/2015-07-02/why-it-s-all-about-the-model-x-for-tesla

The Current U.S. Recovery May Be the Longest Ever

http://www.bloomberg.com/news/videos/2015-07-02/the-current-u-s-recovery-may-be-the-longest-ever

BP Reaches $18.7B Settlement Over 2010 Spill

http://www.foxbusiness.com/industries/2015/07/02/bp-reaches-187-billion-settlement-over-deadly-2010-spill/?intcmp=marketfeatures

Required Reading Of The Day

Greeks Defy Europe With Overwhelming Referendum ‘No’ – Fox Business

Greek Outlook Will Be Uncertain Even After Vote – WSJ

China’s Central Bank to Provide Liquidity to Help Stabilize Stocks – WSJ

U.S. Labor Secretary: Wage Stagnation Remains an Issue – Fox Business

U.S. Cuba Policy: Where Things Stand Now – WSJ 

Saudi Prince Pledges $32 Billion to Good Causes – WSJ

Good & Bad For The Week

Good:

  1. The bulls defend the 200 DMA line
  2. Consumer confidence rose to 101.4 in June, beating estimates for 97.4
  3. ADP said private employers added 237k new jobs in June, beating estimates for 220k
  4. The ISM manufacturing index came in at 53.5, barely beating estimates for 53.2
  5. Construction spending rose to 0.8%, beating estimates for 0.5%

Bad:

  1. Still no deal in Greece
  2. Greece initiates capital controls and shuts down banking system
  3. U.S. pending home sales rose +0.9%, hitting the highest level in 9 years, missing estimates for a gain of +1.2%
  4. The Case-Shiller index slowed sharply to up +0.3%, missing estimates for a gain of 0.8%
  5. The Chicago PMI remains sluggish and came in at 49.4, missing estimates for 50.6
  6. The PMI manufacturing index came in at 53.6, barely missing estimates for 53.7
  7. Fake Jobs report missed estimates. Gov’t said economy created 223k new jobs in June, estimates 233k
  8. Factory orders fell 1%, missing estimates for -0.3%

And the fake job’s number is…?

Fake job’s number is out! Life is better. Things are better except at first blush, over 400,000 left the workforce in the past month. The fake rate is now 5.3%. The problem is that since this administration took office, the labor participation rate has crashed…enabling the rate to come down. If you added back all the supposed people that have left the workforce, we would be in the 8.5-9% range. But government would never fix the numbers so we need to believe exactly what they tell us. Just keep in mind, in a real employment recovery, the participation rate goes up, not down, as more people are more confident in looking for a job. And by the way, when I queried the labor department to get the list of people who left the workforce, they said there was no list. I then asked to give me the names of 5 people who left the workforce. They could not give me any names.

Futures are up as the market continues to recover from the early week’s nausea but leave no doubt, more deterioration has occurred. We will have a complete report over the weekend. Enjoy your July 4th.

Chart Of The Day: Monthly Change in Nonfarm Payrolls

Jobs Report: U.S. Payrolls Climb by 223,000, Missing Estimates For 233,000

Unemployment rate falls to 5.3% but pockets of softness lurk

WASHINGTON—U.S. employers steadily added jobs in June, but wages were flat and the participation rate fell, suggesting pockets of weakness remain in the labor market. Nonfarm payrolls rose a seasonally adjusted 223,000 in June, the Labor Department said Thursday. But revisions to the prior months showed weaker job creation this spring than initially estimated. Employers added 254,000 jobs in May, down from an initially reported 280,000. April’s gain was revised to 187,000 from a previously reported 221,000. The unemployment rate, which is obtained from a separate survey of U.S. households, fell to 5.3% in June, compared to 5.5% the prior month. The rate is the lowest since April 2008, but reflects fewer Americans were looking for jobs. Economists surveyed by The Wall Street Journal had predicted payrolls would rise by 233,000 in June and the unemployment rate would fall to 5.4%. Read More Here: Source: http://www.wsj.com/articles/jobs-report-u-s-payrolls-climb-by-223-000-1435840430