A Bearish-Delayed Response To June 2012 Abysmal Unemployment Numbers?
U.S. equities investors could become more bearish in the short run after more market participants digest the news of Friday’s unemployment report. The unemployment rate stalled at 8.2 percent with June 2012 jobs growth at a dismal new 80,000 added. After an economy sheds jobs, it should bounce back somewhat in recovery mode. Typically there is a growth spurt as employers overdo firings and rush to hire workers once trends change before wages rise. This has not occurred and unemployment has been steadily above 8 percent for 41 months in a row.
Technical indicators we watch have not made a comeback and we forecasted there could be more bearishness in the short run as U.S. equities had already made a significant increase in the last few weeks. The Dow Jones Industrial Average fell 124 points or .96 percent to 12,772 on Friday after the unemployment report was announced but we believe there may be a somewhat delayed reaction to the news as traders may have been on holiday and volume was low.
We believe buying opportunities may present themselves next week as traders revisit short positions. The intermediate term bias may be to the upside but without further promises of Fed Reserve Bank intervention, traders may not be willing to go long due to the negative economic data that has been coming out steadily over the past few weeks. We are ignoring gains in the housing market until we see more strength in terms of unemployment, household incomes and sentiment. Without solid increases in these areas, most home purchases are from investors taking advantage of low prices which won’t move the needle on the fledgling economy. Earnings news won’t change sentiment and we expect JP Morgan’s earnings announcement will set the tone for the financials.
We will be carefully reviewing earnings announcements to see if companies are able to generate profits in a lackluster jobs environment. Oil prices and commodities are down, which suggests demand is shrinking worldwide. We would be buying on dips – patiently. The S&P 500 is nearing support levels that could cause investors to stay on the sidelines if broken.