SPX: The tide will turn someday. But probably not before November

This is one weird market. The SP500, the large cap index of US equities and the broad measure of the market, is up almost 10% from the low in June. In that time:

  • The S&P as a whole is about to reach a fifth successive quarter with a year-over-year decline in corporate earnings, and will quite likely see a further decline in Q3 2016. While companies invariably announce that they beat “expectations,” the Q2 earnings are expected to be down about 3.5% year-over-year. At the beginning of July, the pundits were predicting a 2% gain.
  • The Bureau of Labor Statistics has just released an employment report with suspiciously high “seasonally adjusted” employment numbers, but the gains — if any —   is mainly for crappy jobs and largely limited to seniors. Since 2014 the US has added half a million jobs for waiters and other low-wage employees, and zero net jobs in manufacturing. Since December 2007 the US has “created” 5.5 million jobs for workers over 55, and lost 2.04 million for workers 25 to 54. Buckle up, Gramps.
  • The US Gross Domestic Product grew at an annual rate of a measly 1.2% in the first half of the year. Economist were hoping for something north of 3%.  
  • Britain has voted to leave the European Union, which will eventually provoke an economic crisis in Europe;
  • The world is awash in unpayable debt, but an estimated $13 trillion in government paper carries a negative interest rate. US 10-year bonds are paying yields well below the depths of the financial crisis, a sign of sluggish economic growth.

Any one of those item would normally send investors running for the exits. But last week the S&P made a new all-time high, breaking out of an extended consolidation range and closing Friday at 2182.87. This in the midst of what some analysts are calling “an earnings recession,” and enough bad news to blow the whole business up.

Why?

The proximate cause of the Friday rally was the Non-Farm Payrolls report published before the market opened. The report showed a big increase in jobs, mainly due to the arcane seasonal adjustments the BLS applies to survey results.

But that hardly matters. The easiest trade on Wall St. right now is to go long on the NFP. For the past 6 reports, the results have been better than expected three times and worse than expected three times; the market went up every time.

At this stage in the presidential election cycle, the markets become highly politicized. The Fed’s hawkish pronouncements are routinely ignored because the Street believes the Fed will not do anything to disrupt the market while the campaign is in full cry. That means no rate increase in September.

It is quite clear that Wall Street and the rest of the Ruling Elite want Clinton to win the election. For evidence, read the daily barrage of anti-trump propaganda from inside the Beltway, distributed by the six corporations that give you 90% of the information you receive.

Or look where Wall St. sends is money. Up to the end of June, Wall St., loosely defined, had contributed almost $49 million to Hillary, compared with $19 thousand to Trump. It is clear who the plutocracy favors.

And the plutocracy usually gets what it wants. Don’t expect to see anything that would seriously disrupt the markets until the votes are counted. For the next few months bad news will be no news.

Unless the race is close; then keep your eyes open for an “October surprise” that will damage Trump and help Clinton. It has happened before.

Today

The S&P500 e-min (ES) ES finally broke the narrow consolidation range (2172.50-2141.50) that had been containing the price for 13 days, and made new highs at 2178.50 on Friday. It also managed to close above the breakout point 2172.50, which is considered to be bullish price action.

Today the 2162-2160 zone will be first support area to watch carefully. As long as overnight trading holds ES above it, new highs can still be made again.

A break above 2183.50 could push price up to 2190.75-93.50 or higher up to 2197.75-2203.25, the psychological resistance area.

A move below 2159 level could lead ES down to 2155 -50 area, which is a major support for this week.

Major support levels: 2155-56.50, 2146-43.50, 2133-28.50, 2103.50-00.75
Major resistance levels: 2183-85, 2196-93, 2103.50-06.50, 2214.50-12

Visit www.naturus.com for more weekly analysis of gold, oil and the S&P. It’s free.

 

Chart: S&P500 cash index, Aug. 5, 2016. Daily chart.

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