The "bad news is good news" market has returned. With a weak employment report for the month of September - which was reported 2 weeks late due to the government shut down - traders rejoiced as it put another nail in the coffin of any reduction of quantitative easing for the foreseeable future. This probably was already true as we have another D.C. showdown coming in January and the Fed has been wary of its effects on the economy but the poor jobs number simply convinced more traders that constant easing will be here for a long time. Stocks shot out of the gate at the open, rallied for part of the morning, sold off a bit but then came back late in the day. We mentioned over a week ago there has been a pattern of "V shaped" rallies of late, of 12-14 sessions before sputtering out. This one has been the strongest of the bunch as it has been a nearly parabolic straight up move of now over 100 S&P points. The S&P 500 gained 0.57% and the NASDAQ 0.24%.
U.S. employers added just 148,000 workers in September, according to the Labor Department, missing expectations for a gain of 180,000 new jobs. Still, the unemployment rate dropping to 7.2 percent, the lowest level since November 2008. Most market-watchers now expect the central bank to continue its $85 billion a month bond-buying program until well into 2014.
Here are some longer term charts of the S&P 500 and NASDAQ - you can see we are at the top end of a very long term trend line on NASDAQ, and above the upper trend line of this shorter term series of tops in the S&P 500. So we can say it is frothy out there and very extended.
The NYSE McClellan Oscillator only went back to +50 yesterday before today's buying came in, pushing it back to extreme overbought.
Oil is also interesting to look at here - it has been in a major downtrend since Syria was pushed off the table. Usually you'd want oil rallying to signal a stronger economy but with QE it seems a strong economy is not a concern for the market.
Netflix is a name we have to highlight. It might not apply to this stock since it has so many followers but generally when you have a bar (candle) like you see today, called an outside reversal with a close at the low - it is VERY bearish short term. Now, we are in a quantitative easing market, and in this market it seems like some technical conditions don't matter since everyone is so hopped up on liquidity but in normal times this would call for extreme caution. Recall the stock was up over 10% in after hours yesterday but today it's own CEO called it a momo stock.
Netflix CEO Reed Hastings warned investors late Monday that they were getting euphoric about the company's stock price appreciation. In a letter to shareholders and during a conference call with analysts, Hastings warned about stock volatility and said momentum investors were contributing to the rise in Netflix's share price.
This hurt a lot of the other momentum stocks but most of those were very extended as well and due for some breathing. Investors just went into other areas of the market. After the bell Carl Icahn also tweeted that he had sold a good portion of his stake - he made a tremendous return.
Whirlpool (WHR) was one of the largest gainers of the day, although the chart would not indicate it was poised to move like this as it was one of the stocks not participating in this 2 week rally - until its earnings report came out.
Whirlpool beat earnings expectations and raised its guidance, alleviating fears of a "blip" in September sales that previously triggered worries the government shutdown was sinking demand. The appliance maker's Q3 EPS jumped 51% to $2.72, as the company moved some production to low-cost sites. Analysts polled by Thomson Reuters were expecting $2.61. Sales rose 4% to $4.68 billion, missing expectations for $4.74 billion. The drop last week was sparked by analyst reports of falling sales in late September and early October.
More typical is the situation with handbag giant Coach (COH). When a stock does not rally with the market it usually means some issues are afoot. We saw that in Coach's earnings.
Revenue decreased nearly 1% to $1.15 billion as currency exchange rates and a drop in North American sales all but erased international sales growth.