Excuses Excuses

Tomorrow morning the ADP Employment Change report comes out.  Estimates are a report showing that 645,000 jobs were lost in April.  That’s a lot of people.  I’m grateful it’s not me and hopefully it’s not you.  But, how will the market react to it.  Does it matter?  Personally, I believe investors are numb to this news.  I mean does it really matter to traders if the number is 600,000 vs. 700,000?  Not really.  Basically, whatever the number is it’s going to be a huge number.  It’s awful.  We’re still in a recession and people are still losing their jobs.  The stock market is focusing on the future.  These are rear view window numbers.  Given that, I think the stock market is just about to begin a meaningful sell off.  A sell off we haven’t seen since late March maybe since February.  And everyone will use the bad jobs number as the excuse.  I think there are no excuses for a sell off other than the technicals.  It’s overbought.  That’s it.  But, the media will spin it as negative.  This is the same ADP report that caused the market to rally a couple of months ago and sell off a month ago.  It’s not the backwards looking data.  It’s the mood of the market when it receives that data.

As I mentioned above, I’m expecting a sell off pretty quickly.  As you can see from the picture below (S&P 500 YTD), volume has been declining during the rally which is a red flag.  As I mentioned yesterday on my radio show, red flags are just a warning.  They don’t mean the market is going down but proceed with caution.


In addition, during the rally, we’ve had confidence continuing to build causing investors to let their guard down.  I think that is problematic going forward.  You can see from my indicator below showing fear and confidence is now at a level where sell offs have come before. 


We add to all of this the fact that many stocks are stretched meaning they are trading outside of their normal band.  It’s like the rubber band being stretched too much and snaps back.  I’m dying to buy more.  But, I have to follow my indicators which have gotten me here.  That means raising some cash now and preparing for profit taking.  Profits will be taken at some point by investors.  I don’t want you buying someone else’s stock when they are taking profits and selling them to you.


I’ll be on Reuters tomorrow morning at 5:45 a.m. CST and Fox Business at 8:10 a.m. & 8:30 a.m. CST live from the Chicago Mercantile Exchange.

This post published at www.karleggerss.com

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May 2009
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