Employment Data Takes the Stage – Commentary by Toni Hansen

January 6, 2011

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DAILY COMMENTARY

Market Recovers Losses Despite Mixed Data (Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)

THURSDAY’S MARKET WRAP-UP

Market Snapshot for January 5, 2011 (10:52 p.m. ET): Closing Prices: DOW 12,415.70 (-2.72, -0.02%), SandP 500 1,281.06 (+3.76, +0.29%), NASDAQ 2,669.86 (+21.50, +0.81%), Nikkei 225 8,398.66 (-90.05, -1.06%), DAX 6,095.99 (-15.56, -0.25%), FTSE 5,624.26 (-44.19, -0.508%) OIL 101.43, GOLD 1,626.50, SILVER 29.275 EURO 1.2793,YEN 77.17, BRITISH POUND 1.5504, U.S. DOLLAR INDEX 81.135

Trading Remains Mixed Heading into Friday The market hasn’t offered us much excitement over the course of this shortened holiday trading week so far. Volume has remained relatively light and action has been very mixed with the bulls taking the lead for a few hours before passing the baton to the bears. The index futures were very weak early in premarket trade on Thursday thanks to a return of weakness in Europe, but they began to recover as the opening bell in New York approached. The futures had formed two waves of downside on the 5 minute time frame on the European weakness, but at 7:00 a.m. ET the second and slower wave of selling broke to the upside, triggering a buy setup that was followed by strong upside, thanks in part to the shift in momentum of the selling. By 8:30 a.m. ET the market was back to the levels that were trading prior to Europe’s open.

The prior highs from early premarket trade served as strong price resistance as the market considered the latest economic data in the States. Claims for new unemployment benefits fell 15,000 last week with initial claims for state unemployment benefits dropping to a seasonally adjusted 372,000. This was the fourth time claims have fallen in the past five weeks. Consistent reports under 400k have been welcomed in recent weeks, but it’s still a long way to a solid recovery. Additionally, the ADP National Employment Report stated that 325,000 private-sector jobs were added in December. Nevertheless, the real test for this week will be today’s report on December’s employment situation, including nonfarm payrolls and the latest unemployment rate. Economists are anticipating that payrolls will grow by 150,000, but that the overall unemployment rate does not exhibit much change. The official rate is currently 8.6%. As stated in yesterday’s column, the resistance which hit once again at 8:30 a.m. as the indices tested morning highs left the market set for a pullback into Thursday’s opening bell, but without solid price development for a break in the larger 30 minute channel that had been forming week-to-date. Thursday’s selling continued past the opening bell, but by 10:00 ET the indices were once again hitting support from premarket lows.

In addition to this week’s employment data, the market had also been watching for December’s retail sales as well on Thursday. Unfortunately, the data was not as reassuring as one might have hoped and many retailers saw their share prices slip. American Eagle Outfitter (AEO) fell 10.82%, Children’s Place (PLCE) shares were lower by 6.58%), Gap (GAP) fell 3.23%, while Target (TGT) ended the session down 2.98%, and J.C. Penney fell 2.69%. Barnes and Noble (BKS) was one of the worst-hit though. It fell 17.05% after slashing its fiscal Q-3 guidance. The season was celebrated for its sharp retail discounts, which cut into profits. High-end retailer Nordstrom (JWN) (+1.06%) and teen retailer Zumiez (ZUMZ) (+17.55%) were among the few that beat estimates. Despite the disappointing retail data, the market did manage to turn higher in early-morning trade. Intraday lows held between 9:45 a.m. ET and 10:00 ET and the market trended higher into 14:00 before striking resistance once again at the upper end of the 30-minute trading range. This range continued afterhours with another two-wave pullback on the 5 and 15 minute time frame (albeit more gradual than the one Thursday morning), and the market attempted to hold onto a more bullish bias and pulled higher into Friday morning after only a 62% Fibonacci retracement off highs. The market is currently testing the upper end of the range heading into Friday’s jobs data, but even though the action Thursday and into midnight was bullish, the pace of the upside throughout premarket trade shows hesitation. The market still has plenty of room for another swing higher on the 30-minute charts, but it’s obvious that market participants are awaiting today’s reports before jumping on board.

INDEX WRAP-UP

The Dow Jones Industrial Average ($DJI) ended the day on Thursday with a loss of 2.72 points, or 0.02%, and closed at 12,415.70.Twelve of the Dow’s thirty index components posted a gain. The strongest performers were the financials: Bank of America (BAC) (+8.61%) and JP Morgan (JPM) (+2.09%). These were followed by Disney (DIS) (+1.67%) and another financial: American Express (AXP) (+1.16%). The weakest were Boeing (BA) (-1.08%) and Chevron (CVX) (-0.98%). The SandP 500 ($SPX) finished the session with a gain of 3.76 points, or 0.29%, and closed at 1,281.06. The top performing industry groups were financials (+1.4%) and consumer discretionary (+0.7%). The strongest individual percentage performers in the index were Bank of America (BAC) (+8.61%), LSI Corporation (LSI) (+7.72%), and Pulte Group (PHM) (+7.65%). The weakest industry groups were energy (-0.6%) and telecoms (-0.5%). The weakest individual performers were MetroPCS (PCS) (-8.87%), Tesoro Corp. (TSO) (-5.87%), and Marathon Pete. Corp. (MPC) (-5.45%). The Nasdaq Composite ($COMPX) ended the session higher by 21.50 points, or 0.81%, on Wednesday and it closed at 2,648.36. The strongest performers in the Nasdaq-100 ($NDX) were Sirius XM Radio (SIRI) (+11.48%), Marvell Tech. Group (MRVL) (+7.33%), and Seagate Tech. (STX). The weakest were Netapp (NTAP) (-2.72%), CTrip.com (CTRP) (-2.41%), and Sears Holdings (SHLD) (-2.21%).

ECONOMIC REPORTS AND EVENTS THIS WEEK

Jan 4 7:00 AM MBA Mortgage Index 12/31 Jan 4 10:00 AM Factory Orders Nov Jan 4 2:00 PM Auto Sales Dec Jan 4 2:00 PM Truck Sales Dec Jan 5 7:30 AM Challenger Job Cuts Dec Jan 5 8:15 AM ADP Employment Change Dec Jan 5 8:30 AM Initial Claims 12/31 Jan 5 8:30 AM Continuing Claims 12/24 Jan 5 10:00 AM ISM Services Dec Jan 5 11:00 AM Crude Inventories 12/31 Jan 6 8:30 AM Nonfarm Payrolls Dec Jan 6 8:30 AM Nonfarm Private Payrolls Dec Jan 6 8:30 AM Unemployment Rate Dec Jan 6 8:30 AM Hourly Earnings Dec Jan 6 8:30 AM Average Workweek Dec International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Jan 3 14:00 USD Fed Releases Minutes From Dec. 13 FOMC Meeting*** Jan 4 03:55 EUR German Purchasing Manager Index Services (DEC F) (DEC F) Jan 4 04:00 EUR Euro-Zone Purchasing Manager Index Composite (DEC F) (DEC F) Jan 4 04:00 EUR Euro-Zone Purchasing Manager Index Services (DEC F) (DEC F) Jan 4 04:30 GBP Purchasing Manager Index Construction (DEC) (DEC) Jan 4 04:30 GBP Net Consumer Credit (NOV) (NOV) Jan 4 04:30 GBP Net Lending Sec. on Dwellings (NOV) (NOV) Jan 4 04:30 GBP Mortgage Approvals (NOV) (NOV) Jan 4 05:00 EUR Euro-Zone Consumer Price Index Estimate (DEC) (DEC) Jan 4 10:00 USD Factory Orders (NOV) (NOV) Jan 4 17:30 AUD AiG Performance of Service Index (DEC) (DEC) Jan 4 19:00 AUD HIA New Home Sales (NOV) (NOV) Jan 4 19:30 AUD Trade Balance (Australian dollar) (NOV) (NOV) Jan 5 04:30 GBP Purchasing Manager Index Services (DEC) (DEC) Jan 5 05:00 EUR Euro-Zone Industrial New Orders s.a. (OCT) (OCT) Jan 5 05:00 EUR Euro-Zone Producer Price Index (NOV) (NOV) Jan 5 08:15 USD ADP Employment Change (DEC) (DEC) Jan 5 10:00 CAD Ivey Purchasing Managers Index s.a. (DEC) Jan 5 10:00 USD ISM Non-Manufacturing Composite (DEC) (DEC) Jan 5 17:30 AUD AiG Performance of Construction Index (DEC) (DEC) Jan 6 USD ICSC Chain Store Sales (DEC) Jan 6 03:15 CHF Consumer Price Index (DEC) (DEC) Jan 6 03:15 CHF CPI – EU Harmonised (DEC) Jan 6 05:00 EUR Euro-Zone Business Climate Indicator (DEC) (DEC) Jan 6 05:00 EUR Euro-Zone Consumer Confidence (DEC F) (DEC F) Jan 6 05:00 EUR Euro-Zone Retail Sales (NOV) (NOV)*** Jan 6 05:00 EUR Euro-Zone Unemployment Rate (NOV) (NOV) Jan 6 06:00 EUR German Factory Orders s.a. (NOV) (NOV) Jan 6 07:00 CAD Unemployment Rate (DEC) (DEC)*** Jan 6 07:00 CAD Net Change in Employment (DEC) (DEC)*** Jan 6 07:00 CAD Full Time Employment Change (DEC) Jan 6 07:00 CAD Part Time Employment Change (DEC) Jan 6 07:00 CAD Participation Rate (DEC) Jan 6 08:30 USD Change in Non-farm Payrolls (DEC) (DEC)*** Jan 6 08:30 USD Change in Private Payrolls (DEC) Jan 6 08:30 USD Change in Manufacturing Payrolls (DEC) (DEC) Jan 6 08:30 USD Unemployment Rate (DEC) (DEC)*** Jan 6 08:30 USD Avg Hourly Earning YOY All Emp (DEC) *** Highly influentialNotice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice. Foreign economic reports included in this list are only those deemed medium to high impact.

KEY EARNINGS ANNOUNCEMENTS THIS WEEK

Monday, Jan 2, 2012 Before: – During: – After: – Tuesday, Jan 3, 2012 Before: – During: – After: LNDC, PRGS, TISI Wednesday, Jan 4, 2012 Before: UNF During: – After: MOS, RECN, SONC, TXI Thursday, Jan 5, 2012 Before: STZ, HELE, MON During: – After: SHLM, APOL, GPN, RT, SABA, XRTX Friday, Jan 6, 2012 Before: CMC, IHS During: – After: –

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

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