NFP 2014-12-05: A Post Mortem

BarroMetrics Views: NFP 2014-12-05: A Post Mortem

The BLS was kind to me – it produced the numbers I was expecting (in fact better than expected).

The question that must be asked, if may theory is correct and John Williams’ belief that the distorted numbers need a ‘catch-up’, when may we expect the ‘catch-up’ to occur?

I believe we’ll see that in the Jan 2015 release. Politics ought to be quiet for the Xmas break as should the markets. This will be the ideal time to spring ‘bad news’. My expectations will be for a number less than consensus but contained by the low of the consensus range. What these numbers may be we’ll look at in Jan. 2015.

Turning to  the actual NFP number……

Figure 1 shows the  BLS figures (the red line is the current headline number) and the ShadowStats Alternate. What we see is a precipitous drop in the BLS line and the SSA holding stats. How can this be?

Attached is a summary of what John had to say about the November numbers. By the way, if you have any interest in seeing the true picture behind the BLS reports, you can do no better than spend US$175.00 for a year’s subscription. And no, I have no financial interest in your taking up a subscription. (To subscribe: http://www.shadowstats.com/subscriptions)

I’ll be keen to see what this week’s AMB Fred graph. You will recall that the last issue saw a US$2B drop in reserves. If we continue to see a drop, we can expect to see a rise in the Feb or Mar inflation numbers; and a drop in the S&P (?)

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FIGURE 1 Unemployment

 2014-12-05-nfp.doc

ShadowStats Summary

FOMC – Dec 05 2014

 BarroMetrics Views: FOMC – Dec 05 2014

I am aware that I need to conclude “Trends” and “Unrealistic Expectations”. I’ll attend to both next week.

Today there is a more immediate concern. The FOMC numbers due out tonight. ShadowStats was particularly critical of the Oct numbers. After stating why he thought the numbers were distorted, John Williams went on to say…….

“Employment Should Fall Sharply and the Unemployment Rate Should Rise in November.  Reversing the swings seen in 2013, November 2014 likely will move sharply in the opposite direction from October, as the reporting and adjusting imbalances catch up.  Watch for an offsetting sharp headline decline in the November 2014 household-survey employment number, and an increase in the November headline unemployment rate”.

I don’t often disagree with John. But. on this occasion I do.

I developed a theory (and so far it has served me to good stead) that the ‘numbers’ nowadays  seem to serve a political need. This month Obama is in retreats on most fronts. Given this, my theory suggests that the offset suggested by John will not occur this month. More likely we’ll see a number close to consensus, or at the higher end of consensus range.

The consensus for the November numbers comes in at 230K with the range being 140K to 275K. I am suggesting we’ll see a number between 230K and 275K.

Such a number would keep the S&P upmove on track, and keep the USD steady.  A number above 275K will send the USD up, while a number below 200 is likely to send the USD down, given the sentiment currently in the market.

Unrealistic Expectations

BarroMetrics Views: Unrealistic Expectations

The other day I participated in a forum on why so many traders fail. The agenda was to go beyond the truth that so many trade without a proper foundation for ‘Mind’, ‘Money’ and ‘Method’.  I suggested that there were two underlying reasons:

  • Most failures came about because traders entered into the profession with unrealistic expectations of what it takes to succeed….the necessary investment of time, effort and money. And,
  • Once the ‘easy money’ illusion is shattered, an unwillingness to pay the price necessary for success.

In some ways, a newbie cannot be blamed for having unrealistic expectations. Just look at the hype we receive …hype that proclaims 80%, 90% and above win rates, a mere 1% per day profit (200% pa) etc.

A story to illustrate…….

Last year, my personal trainer asked me what I thought about a software that produced day-trading signals that ‘guaranteed’ 80% win rate, and a 45% pa ROI. I told him I’d be happy to have a look at it, but that I was skeptical.

It turned out, his niece had been retrenched and had decided to enter the stock market. After reviewing the software, I advised her to go elsewhere. Course she paid little heed; she is no longer trading, having blown her account.

On the other hand, the hype environment does not excuse the newbie from performing a thorough due diligence. In this respect, the newbie of today is a far better position than the newbie of old. In the days of pre-internet, due diligence was much, much harder.

If unrealistic expectations should be only a temporary problem, the question that naturally arises, is why has the dismal failure rate not improved – given the improvement in technology and learning theory?

More tomorrow…….

S&P Revisted 2014-12-01 II

BarroMetrics Views: S&P Revisted 2014-12-01 II

I was going to complete the series on Trends today; but, last night’s price action in the E-minis is worth a mention.

As Figure 1 shows, in the day session, each time the ES tried to rally, it was sold off. I can’t remember the last night this happened. In addition, in today’s FT MohamedEl-Erian suggests that stock traders are ignoring the signals from the commodities and bond markets – that a stock market decline is being warned. Finally a piece from The HK Standard which reported that home prices again fell in November by an average of 0.27% according to E-House China Holdings and China Real Estate Index System.

The CREIS further stated that most cities had large inventories of unsold homes. The cut in interest rates is unlikely to spur a recovery.

If we take these various items, and add them to the technical picture I described in  BarroMetrics Views: S&P Revisted 2014-12-01, there may a solid warning that the stock indices are about to provide an unwelcome Xmas present. Let’s see what the future brings

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FIGURE 1

S&P Revisted 2014-12-01

BarroMetrics Views: S&P Revisted 2014-12-01

This week should provide clues to tell us if the technical picture will align with sentiment. Since the breakout in early November, we have price action, below normal volume and range, but that has moved above the Maximum Extension, 2509 (basis cash).  So, on the one hand, an Upthrust Change in Trend (13-week, quarterly trend) is still likely; and on the other, the move above the Max Ext suggests upside continuation.

If the 13-week sell is triggered, at the very least, we’ll see a 12-month line turn (currently the line change price is 1712.41). And, if my reading of the market is correct, and a 13-week Change in Trend marks the beginning of a sustained bear market (courtesy of QE), then we may well see move to the 1987 yearly bar, 340.45 to 216.88. This figure is based on previous bear markets correcting a 60-month [5-year] trend.

If an upmove is the result, then the minimum target is where Wave V = Wave I (Figure 1), this is the 2263 to 2128. This target is arithmetically calculated. A percentage calculation where Wave V = 100% of Wave 1’s magnitude, projects a target to 2412. This is around the area where arithmetically, Wave V = 2 x Wave I.

MRCI’s seasonal charts suggest that, this week, we should see an acceleration in upward momentum, with a slight correction, Dec 06 to 10, followed by an upmove to Jan 10-18.

Let’s see what the week brings.

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FIGURE 1