The S&P 500 is soaring to new highs for the year with a 2% rally following the better than expected jobs number. The index has now risen 50% off its March lows. The market is seeing a widespread rally with commodities the only laggards thanks to a super strong bounce in the dollar. The Dow Transportation index is hitting highs for the year and the small cap Russell 2000 index is really performing well with a 3.3% gain. It is noteworthy that the semiconductors are not truly participating with the SOX index barely in positive territory. This weakness in the semis is weighing on the NASDAQ, which is only testing its recent highs.
Asian markets were mostly lower. The Chinese Shanghai index suffered one of its worst weeks in several months. Thursday's 2.1% decline was followed by another 2.8% drop on Friday as investors continue to worry about the Chinese government tightening monetary policy. The Hong Kong Hang Seng lost 2.5% on Friday and ended a three-week winning streak. The Japanese NIKKEI index produced a triple-digit bounce in the last two hours of trading to rally back into positive territory with +0.2% gain.
European stock markets started the day off tired and weary with all the major indices under water. There was another economic report out of England showing how fast wholesale prices were falling, which reinforced the Bank of England's fears over deflation. Then the U.S. non-farm payroll data sparked a broad-based rally sending all of them into positive territory. The British FTSE gained 0.8%. The French CAC-40 rose 1.2%. The German DAX rallied 1.66%.
There were a lot of mixed expectations for the July jobs number. I saw estimates from -150,000 to -488,000. Yesterday Goldman Sachs revised their estimate to -250,000. Did Goldman know something? Consensus estimates were around -320,000 jobs. The Labor Department said the U.S. economy only lost 247,000 in July and that unemployment rate actually ticked lower from 9.5% to 9.4%. Expectations were for a rise to 9.6%. Is this a bottom or a temporary bounce on the way to a 10% to 11% unemployment rate? Currently we are in an environment where the market is only seeing good news and investors are buying (chasing) stocks on the improvement even though the market remains very overbought.
In other news investors were happy to hear that the Senate passed a bill and President Obama signed into law a $2 billion extension for the cash-for-clunkers program. Economists can argue that the program is pulling sales forward from the future but Washington probably needed some positive press these days. Consumers can receive up to $4500 toward a new car for turning in their older, low-MPG clunkers. The new law extends the funding from $1 billion to $3 billion and the deadline to buy the new car till Labor Day. It looks like this news is already baked into the automakers. Shares of Ford Motor Co. (F) are only up 0.3% near $8.00 and Toyota Motor Corp (TM) are down 0.1% near $85.90.
Currently the S&P 500 index is up 1.9% at 1,016. The NASDAQ is up 1.8% near 2,009. The Dow Industrials are hitting new highs for the year at 9,421, a 1.7% gain. The small cap Russell 2000 is up 18.5 points for a 3.3% gain near 576.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list I see that the euro ETF (FXE) is down 1.2% thanks to strength in the dollar. The dollar strength is also affecting gold and the miners. The GDX is off 1.5%. Shares of J.C.Penney (JCP) are soaring 9.8% and hitting new highs for the year. JCP has exceeded our first target at $32.75 and quickly approaching our second target at $34.90. The S&P 100 index (OEX) has exceeded our target at $469.00. The biotech sector is not really participating in the rally so our GENZ and IBB put plays are doing okay. However, the widespread rally is pushing LMT past our stop loss. Surprisingly the QLD has not hit our stop yet. VPRT and WYNN are bouncing but they have not yet broken resistance.