August Jobs Day, S&P 500 Support Report, Time to Be a Trader, ARKK Outflows

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What Was That?

“They” bought the dip. They sure did. Ahead of August jobs day, no less.

What does it mean? I’m not sure.

Let’s think about this. The much-anticipated Bureau of Labor Statistics employment report for August is due here on Friday morning. Consensus is for Non-Farm payrolls in the 290,000s, though many professionals expect the numbers for job creation that have been released by the BLS will need to start moving toward each other.

Recall that over the past four months, the BLS Establishment Survey (NFP) has exhibited a tremendous environment for job creation, while the Household Survey (also compiled by the BLS) has shown hardly any job creation at all. The ADP Employment Report finally reappeared this week after taking the summer off to reconfigure that much-needed data point. Only covering private employment, which represents the lion’s share of non-farm payrolls, the ADP print came in at 132,000 for August this week, well below the almost 300,000 that many economists expected.

How markets react to this morning’s numbers will be interesting. On Thursday morning, the markets as well as the public at large were hit with some surprisingly good macroeconomic data.

First, the weekly print for initial jobless claims hit the tape at 232,000, which was the fewest total persons filing for state unemployment benefits for any single week in almost two months. Then, the ISM Manufacturing Index, which is what most folks acknowledge as the national PMI in this country, surprised to the upside for August. The headline print of 52.8 was flat from July, but better than the 52 even that most were expecting.

The most important component of that release, as with any manufacturing-based survey, was New Orders, and New Orders hit the tape at 51.3, moving back into expansionary territory after July’s contractionary 48.0. The situation also improved for Employment, which is interesting. What’s also interesting is that Pricing slowed significantly to just 52.5 from 60.0 for the month.

At first markets reacted to the good news with a selloff, for good is bad news as far as the Fed is concerned. “They” have made plain that at least for now, and for the coming year plus, that “their” goal as a central bank is to damage the US economy and US household standards of living in order to slow inflation. Indeed, as the Atlanta Fed revised its GDPNow real-time snapshot for third-quarter economic growth from +1.6% to +2.6% (quarter over quarter, seasonally adjusted annual rate), both equity and debt markets sold off.

As the yield for the US 10-Year Note did this….

… the S&P 500 traded down 1.3% for the session, while the Nasdaq Composite, led lower by the semiconductors that in turn were led lower by Nvidia (NVDA) , slid as much as 2.3% before equity markets found their footing.

Algorithmic Ping Pong

The Nasdaq Composite still closed lower for a fifth consecutive session, down 0.26%, but the S&P 500 actually managed to go green, up 0.3% on Thursday. Let me show you this. You’re going to love it…

I’ve shown you this chart before. S&P 500 in a downtrend. Now, we’re going to zoom in on the extreme right, which is where the most recent action is…

OK, you see the sharp rejection of the S&P 500 at the 200-day simple moving average (SMA) on Aug. 16? That’s where the current selloff started. You knew that already. Now go to this past Tuesday. The index falls through its 50-day SMA without any kind of support shown. Then, on Wednesday, the S&P 500 in an early attempt at a rally just kissed the 50-day SMA, only to be as sharply rejected as it was at the 200-day line on Aug. 16.

Now, yesterday, look at what happens at the halfway back point (the 50% retracement level of the mid-June through mid-August rally). Sharp, stiff support. Think humans are making those decisions? Not in real time. Those are massed algorithms designed by high-speed trading operations employing an army of chart monkeys such as ourselves. Pure, algorithmic ping pong. Ooh, eee, ooh, ah, ah… ting, tang, walla walla bing bang.

Breadth?

Still awful. Markets were mixed at day’s end; there was even some green on the screen. Heck, eight of the 11 S&P sector-select SPDR ETFs gained on Thursday, but — and this might be a big but — the top two performers, Health Care (XLV) and Utilities (XLU) , as well as four of the top six were all “defensives,” which could mean that folks were moving toward shelter. Remember what I have always said. In an interest rate rising environment, high dividend payers offer little to no shelter as they run into competition for investment dollars from debt securities.

Losers still beat winners by a rough 5 to 2 at the New York Stock Exchage and about 2 to 1 at the Nasdaq Market Site. Advancing volume took only a 30.8% share of composite NYSE trade and a 36.1% share of that metric for Nasdaq listings. Aggregate trading volume also ebbed significantly on Thursday. This could mean that professional money was not buying into Thursday’s bullish reversal, or it could just mean that some professionals had already decided to head out for the long weekend. I find that explanation a little tough to swallow given that today is jobs day, but it is a possibility.

Buy the Dip?

Why not? Sentiment appears to be turning. For traders. Traders, like myself, can move large percentages of available capital in minutes. Others, who do something else occupationally and maybe cannot trade but must invest in order to participate, are in a tougher place.

So, buy the dip? Let me count the reasons why not….

Globally…

Drought, Recession, War in Europe still suppressing supplies of food and energy, Pandemic-related shutdowns in China still kinking up supply chains.

Domestically…

Slowing economic activity, rising layoffs, elevated pricing for necessities, uncertain consumer.

Corporate…

Rising expenses, margin compression, reduced demand for services, restricted sales of semiconductors.

Monetarily…

Overtly reckless central bank posture, rising short-term rates, 20-year high US dollar valuations, $95 billion per month reduction to the monetary base moving forward.

Technically…

Sharp S&P 500 resistance at both the 50-day and 200-day SMAs.

Seasonality…

Over 40 years, September on average is the only negative month, and the only month bearing both a negative median return and negative mean return over that time.

As already mentioned, I think it’s a much better time to be more a trader than an investor. I will remain heavy, even majority cash at night and going into weekends for the time being. If one must invest in order to participate, I would (will) key on areas where demand is likely to remain inelastic. These would be industries such as Utilities, Health Care (Pharma in particular), Cybersecurity (still expensive, be careful) and National Defense. From those groups, I am almost always long Southern Co. (SO) , Lockheed Martin (LMT) , Raytheon (RTX) and Johnson & Johnson (JNJ) . I also recently initiated a long position in CACI International (CACI) and I’m considering CrowdStrike (CRWD) this morning now that it has come in $20 since I wrote about it on Wednesday. I also think Pfizer PFE can be bought on weakness.

You Don’t Say

Here’s one for the bulls. On Thursday afternoon, in his Daily Diary blog, Doug Kass mentioned that a few weeks back Lee Cooperman had told him that markets probably would not bottom until ARK Management had experienced outflows.

Also on Thursday afternoon, news broke that Cathie Wood’s flagship ARK Innovation ETF (ARKK) had experienced its worst month of capital outflows ($803 million) since September 2021, bringing assets under management down to $8.01 billion. ARKK closed August down 52.4% year to date and 73.8% off of its all-time high.

August Employment Situation (08:30 ET)

Non-Farm Payrolls: Expecting 291K, Last 528K.

Unemployment Rate: Expecting 3.5%, Last 3.5%.

Underemployment Rate: Last 6.7%.

Participation Rate: Expecting 62.2%, Last 62.1%.

Average Hourly Earnings: Expecting 5.2% y/y, Last 5.2% y/y.

Average Weekly Hours: Expecting 34.6, Last 34.6 hours.

Other Economics (All Times Eastern)

10:00 – Factory Orders (July): Expecting 0.2% m/m, Last 2.0% m/m.

13:00 – Baker Hughes Total Rig Count (Weekly): Last 765.

13:00 – Baker Hughes Oil Rig Count (Weekly): Last 605.

The Fed (All Times Eastern)

No public appearances scheduled.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: (DOOO) (2.63)