Friday, January 06, 2012

Jobs Data Continues To Surpass Consensus

The markets are lower in early trading, despite the better than expected payrolls report that was released before the open. The main weakness this morning likely remains concerns in Europe that are helping drive the euro lower again today. And I don't need to mention the contuining correlation between stocks and the euro.

The December nonfarm payrolls report showed the economy added 200,000 jobs, which is well above the 150,000 estimate. Private payrolls also grew more than expected (212k). Additionally, the unemployment rate ticked down to 8.5%. It was expected to rise to 8.7%.

So this is good news for the U.S. economy, although you wouldn't know it from the action in Treasuries. I would expect to see yields rising today, but instead the 10-year yield briefly rose to 2.0% but has since eased back and is now back to 1.96%. Not exactly an inspiring vote of confidence in the economy.

As we have seen all week, the Nasdaq is outperforming the S&P in early trading and bucking this morning's weakness for the most part. Among sectors, consumer discretionary (XLY) stocks are higher so far, while consumer staples (XLP) are down the most.

Asian markets were lower overnight, and China is not off to a good start to the year already. The dollar is higher, which is weighing on commodities. Oil prices are lower near $101.25. Gold prices are down to $1616. Silver prices are down also, but copper prices (JJC) are higher as of now.

As for the VIX, despite the morning selloff the volatility index is lower on the day. The VIX is currently down -1% near 21.25. This is a pretty bullish sign, as I think many traders expected volatility to pick back up once trading started in earnest in 2012.

Trading comment: The price action continues to be constructive in the major indexes. The Nazz has been outperforming nicely. And if you look at the intraday action in the SPX this week, you can see that most of the days showed weakness in the morning but the market picked up steam and closed flat to up those days. This means investors have been buying the weakness and in most cases augurs well for more upside ahead. Sentiment in yesterday's AAII poll showed too much bullishness, so that is one red flag. Additionally, the market is overbought once again. So I wouldn't load the boat here, but I have to give the market credit for the positive price action.


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