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The stock market continued to coil in the action yesterday and that indicates a possible strong reaction to the US numbers this morning. On the other hand, seeing the S&P somewhat closer to the 850 level than to the 800 level would seem to leave the market somewhat vulnerable to a disappointment off the numbers this morning. However, one has to recognize that the stock market has been able to absorb negative economic news rather impressively and that could mean that stock prices initially tank in the wake of the data, but then steady. Perhaps the Democrats are overstating the need to get a “deal” done and the prospect of a deal getting passed at some point in the near future is still something that might discourage the shorts from attacking the market. You might get short in the face of the numbers, but seeing news of a possible Senate vote on the stimulus package in the afternoon might cause the shorts to bank profits quickly. We think it will be an impressive feat to avoid at least a temporary down draft to 817 in the March S&P this morning unless the Labor Department cooks the numbers and plan to revise them higher a couple months down the road. Certainly the market has seen some favorable corporate performance and as usual some decent sales figures from Wal-Mart, but the majority of the corporate guidance and earnings highlights a deteriorating system. In the unlikely event that the Non farm payroll are relatively close to the -500,000 level, instead of being above -550,000 that probably launches the markets back to this week’s highs.
S&P 500: We think the S&P will be the ultimate measure of the strength or weakness of the upcoming stimulus package. We suspect that the S&P will dip in the wake of the payroll readings with a morning low of 821.90 before “hope” of an answer from the US Senate provides a recovery bounce. However, in the days ahead, when the real measure of the hurried stimulus package is sifted through, it will become clear that the US economy in the short term is still pretty much on its own. Therefore, the bulls need news that a vote could take place to throw off initial weakness, especially if the jobs loss is larger than -600,000.
DOW: The March Mini Dow sits above the middle of this week’s range and that makes us suggest that the market is a bit vulnerable into the monthly payroll reports. With the blue chips/large cap stocks underperforming the lower end of the market over the last two weeks, we hardly expect the Dow to be able to spin the numbers into its favor this morning. However, the new Administration is seemingly poised to pull out all the stops and perhaps spend a portion of their political capital to force a bill through. Therefore, if the stock market is down hard in the morning, the push will be on to get a countervailing headline from Congress to save the day. Unfortunately Wall Street and a number of noted economists have already suggested that the current bill isn’t a major jobs producing bill. The pattern today could be down through the numbers, a recovery into mid day and perhaps a slide before the close to 7,799.
NASDAQ: With the March Nasdaq sitting close to an upside breakout on the charts this morning and the rest of the market sitting closer to the middle of the recent trading range, one clearly gets the sense that the Nasdaq is capable of weathering some negative readings better than the rest of the markets. However, given the slightly overbought short term condition, the Nasdaq might see the most intense early wave of selling before the residual optimism toward the sector provides a recovery bounce. Our pick for an early low in the March Nasdaq is 1214.00.
