{"id":171836,"date":"2020-06-09T08:30:33","date_gmt":"2020-06-09T12:30:33","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=171836"},"modified":"2020-06-09T08:21:08","modified_gmt":"2020-06-09T12:21:08","slug":"the-big-jobs-number-and-how-to-trade-it-part-ii","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/06\/the-big-jobs-number-and-how-to-trade-it-part-ii\/","title":{"rendered":"The Big Jobs Number and How to Trade It \u2013 Part II"},"content":{"rendered":"
June 9, 2020<\/div>
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By TheTechnicalTraders<\/u><\/a><\/strong><\/p>\n

In the first part of this research article, we attempting to highlight how the huge jobs number shocked the market into a big upside price move on Friday, June 5, 2020, and how the underlying data continues to suggest we have quite a bit of work to do before the US economy supports current stock market price levels.\u00a0 In this second part of our research article, we\u2019ll continue to share data and charts that we believe paint a very real picture for skilled technical traders.<\/p>\n

The huge upside price rally in the US stock market after the 2.5 million jobs number was posted at 8:30 am pushed the stock market higher by 3.5%+.\u00a0 This is an incredible rally in terms of how primed the stock market was for this type of great news.\u00a0 Yet, as we continue to try to suggest, we are still moderately cautious of this rally in terms of sustainability after the destruction to the US and the global economy as a result of the COVID-19 virus event.<\/p>\n

Our researchers believe the current numbers may be slightly skewed because of the extreme contraction event that took place over the past 60+ days.\u00a0 Additionally, many of these numbers are calculated using a modeling system that attempts to normalize outlier data.\u00a0 Currently, with the markets pushing well into a bullish territory and the NASDAQ reaching new all-time highs, we can\u2019t argue that the US stock market appears to want to move higher on any news (good or bad).<\/p>\n

Before you continue, be sure to\u00a0opt-in to our free market trend signals<\/strong> <\/em>before closing this page, so you don\u2019t miss our next special report!<\/em><\/p>\n

NASDAQ (NQ) E-MINI FUTURES DAILY<\/strong><\/h3>\n

This NQ Daily chart highlights the incredible rally we\u2019ve seen in the tech-heavy NASDAQ.\u00a0 After recovering nearly 50% from the March lows, the NQ began to set up an upward sloping wedge formation near the middle of April.\u00a0 This tightening wedge formation has apex\u2019ed recently just as we got the new jobs number today.<\/p>

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In an unbelievable upside price rally, the NQ is now trading at the highest levels EVER.\u00a0 After 38 million jobs lost, the US economy operating at only a fraction of what it was in January, huge consumer displacement factors, and thousands of pending solvency issues \u2013 hey, why not push the NASDAQ up to new all-time highs.\u00a0 This makes no sense to us at the moment.<\/p>\n

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NAS100\/GC DAILY RATIO CHART<\/strong><\/h3>\n

The reality is that this incredible rally in the stock market may have already become a speculator \u201cbubble\u201d \u2013 a euphoric over-reaction to the deep decline related to the COVID-19 virus event.\u00a0 Earnings and future revenues typically drive valuation growth higher.\u00a0 Take a look at this NAS100 to Gold ratio chart to understand what has really happened in the markets over the past 4+ years.\u00a0 The peak in values in October 2018 coincided with the US Fed action to raise interest rates which prompted a massive decline in the US stock markets throughout the end of 2018.\u00a0 Near Christmas, 2018, the markets bottomed and began to rally higher.\u00a0 Notice the peak in 2019 was not higher than the peak in 2018?\u00a0 This suggests the real valuation peak in the market coincided with the peak Fed Funds Rate level in October 2018.<\/p>\n

Additionally, the downward price channel that has setup in this ratio chart suggests the wild trending in the markets while Gold has pushed moderately higher has prompted a sideways pennant\/flag formation.\u00a0\u00a0 The previous peak, in early 2020, and the current peak are well above the upper pennant level \u2013 this suggests an over-exaggeration of price advancement.\u00a0 This type of ratio activity is very reminiscent of 2005 to 2007 \u2013 where the stock market rallied and gold rallied, eventually leading to the breakdown in the stock market in 2008-09 and a much deeper breakdown in this ratio.<\/p>\n

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US ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX<\/strong><\/h3>\n

The current economic data does not support a US stock market rallying to new all-time highs \u2013 unless you attempt to account for investor over-enthusiasm and exuberance.\u00a0 The business activity data over the past few months have shown the deepest decline over the past 20+ years.\u00a0 There has never been a print of this indicator below 30, ever, except April 2020.\u00a0 Even at the height of the 2008-09 housing\/credit market crisis or the 911 terrorist attacks, US businesses continued to operate at moderate levels.<\/p>\n

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(Source: https:\/\/www.investing.com\/economic-calendar\/ism-non-manufacturing-business-activity-1484<\/a> )<\/p>\n

US UNEMPLOYMENT RATE MONTHLY<\/strong><\/h3>\n

The unemployment rates are still far higher than at any time in over 70+ years \u2013 everything is fine.\u00a0 Why not push the stock market price levels higher by another 20 to 25% \u2013 right?\u00a0 These people will eventually find work somewhere \u2013 sometime??\u00a0 The consumers will eventually re-engage in the economy and push income and revenue levels higher \u2013 but not right now.<\/p>\n

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(Source: https:\/\/www.investing.com\/economic-calendar\/unemployment-rate-300<\/a> )<\/p>\n

US ISM MANUFACTURING INDEX MONTHLY<\/strong><\/h3>\n

The ISM Manufacturing Index suggests manufacturers are operating 25 to 45% or below capacity levels from early January\/February 2020.\u00a0 This will translate into bottom-line revenue data in the near future and likely result in much lower forward earnings guidance.<\/p>\n

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(Source: https:\/\/www.investing.com\/economic-calendar\/ism-manufacturing-pmi-173<\/a> )<\/p>\n

Our continued warnings may go unheeded by the masses \u2013 and maybe we are wrong.\u00a0 Yet we continue to advise our clients to be very cautious of this upside price rally as we believe the technical factors driving this market are skewed.\u00a0 Speculators and investors are caught up in an elated buying phase when real data suggests more moderate price valuations.\u00a0 We are still very concerned about the risks of a breakdown in the markets related to a sudden shift in trader\/speculator thinking.<\/p>\n

Very similar to the enthusiasm of 2006 to 2008, traders can sometimes fall into a trap that expectations do not correlate with real data\/technicals \u2013 and this can be dangerous.\u00a0 If you play these upside moves very cautiously and target the best asset for your investment objectives, you can do very well while this rally pushes higher.\u00a0 Yet, you also have to be very aware of the risks of a breakdown in price related to the tightening economic conditions and price channels.<\/p>\n

YM \u2013 DOW JONES E-MINI FUTURES 30 MINUTE CHART<\/strong><\/h3>\n

This YM 30-minute chart highlights the incredible rally that took place very early in trading on June 5, 2020 \u2013 just after the jobs number hit.\u00a0 The traders and speculators want anything that seems positive after months of uncertainty related to the COVID-19 virus event.\u00a0 This bias towards anything positive suggests traders will attempt to push price levels into a feeding frenzy \u2013 ignoring all risks and other data.\u00a0 No Fear is an excellent description of what is happening right now in the US stock market \u2013 traders have absolutely no fear of any downside risks.\u00a0 We\u2019ve seen this before \u2013 and it usually ends badly for some people (remember the DOT COM rally?).<\/p>\n

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Concluding Thoughts<\/h3>\n

Our opinion is that traders should stay moderately cautious near these current levels.\u00a0 Even though it appears the markets can do nothing wrong and speculators will likely be telling you \u201cthis is the opportunity of a lifetime \u2013 just buy anything right now\u201d, our experience is that these types of crazy, euphoric rallies are very dangerous.\u00a0 Price breakdowns come fast and hard in markets like this \u2013 they happen quickly.<\/p>\n

Cover your open long trades with moderate stop levels.\u00a0 Be picky about what you invest in and target quick gains.\u00a0 Remember the market can act irrationally much longer than many people can stay whole.\u00a0 The shorts are under severe pressure right now, but the data is pointing to a very different outcome in our opinion.\u00a0 We urge you to stay cautious right now \u2013 this seems very similar to the exuberance that we saw in 2006-2008 \u2013 just before it all fell apart.<\/p>\n

As a technical analyst and trader since 1997, I have been through a few bull\/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is an incredible year for traders and investors.\u00a0 Don\u2019t miss all the incredible trends and trade setups.<\/p>\n

Subscribers of my\u00a0Active ETF Swing Trading Newsletter<\/strong>\u00a0had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain, and we closed out another winning trade on Friday.<\/p>\n

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.<\/p>\n

TheTechnicalTraders.com<\/u><\/a><\/strong><\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By TheTechnicalTraders In the first part of this research article, we attempting to highlight how the huge jobs number shocked the market into a big upside price move on Friday, June 5, 2020, and how the underlying data continues to suggest we have quite a bit of work to do before the US economy supports […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-171836","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/171836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=171836"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/171836\/revisions"}],"predecessor-version":[{"id":171844,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/171836\/revisions\/171844"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=171836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=171836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=171836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}