Prague Twin

Friday, October 06, 2006

Whipsaw

I'm glad I stayed out of the markets today.

Today's headline jobs report showed 51,000 new jobs added in September, less than fifty percent of the 115K to 120K predicted. The dollar was sharpley down accross the board on the headline, but within seconds the August number was revised up from 128K to 188k. This, in effect, negated the effect of the headline number. The dollar gained all it's ground back and just kept going right through important resistance levels. The dollar is now poised for a bull run.

This is a classic whipsaw where most traders loose because if they are correct on the first leg they end up loosing it all and more when it whipsaws back against them. Those that were actually "right" about where the market was going get stopped out on the initial false alarm. Hurt, they are afraid to get back in when things start going their way.

There will be some sad folks walking around South Manhattan this evening.

But what the job report tells us is that the economy is still growing, albiet slower. This hits the sweet spot for bulls who want to see growth but see inflation under control. Hourly earnings are up only .2% although .3% was predicted underpinning low inflation expectations. But the stock market is so overstretched, what with the Dow setting new highs 4 days in a row. As a result, questions are being asked as to how long this run can be sustained. Dollar stregth has usually meant market weakness. Record levels in the Dow and the dollar is gaining momentum. The Dow is down 25 points two hours into trading.

This market could use a good correction right about now.

3 Comments:

  • The jobs number came in well below expectations at 51,000, yet the talking heads on CNBC said traders simply added the 51,000 from Sept to the revised upward numbers for July and August (60,000+) and said - "All is well."

    To paraphrase Ben Franklin, "What a wonderful thing it is to be reasonable creature. One can find a 'reason' to do whatever it is one wants to do.

    Indeed.

    By Blogger reality-based educator, at 6:02 PM  

  • I could never play the markets (back when I had some stock, etc.) because reasonable things to do were always being the wrong thing to do for reasons like you describe. Tough work, I think, but then my work is not a day at the beach either.

    By Blogger Roger Fraley, at 11:28 PM  

  • RBE,

    Yea, basically the other way around, i.e. they added the upward revision number from August (+60K) to the September number so that September is in line with expectations. Same difference.

    I love the Franklin quote: that really says it all.

    Roger,

    Work is always work at the end of the day, isn't it.

    By Blogger Praguetwin, at 9:34 AM  

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