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Sunday, April 7, 2013

Market Thought... the pause

The Employment Situation number sucked.  From an estimated 193,000 an actual number of 88,000 jobs created. Can't put lipstick on a pig.  The crappy jobs number (including the weak jobless claims for the week) caused the 10yr yield to collapse.

Over the past few days I have been searching to an outlier, like Hurricane Sandy that caused an unusual spike in jobless claims or a drop in employment. The best I could find was an explanation of "seasonality". In other words, a bullshit reason.  The only reasonable explanation could be the underlining effects of the sequester.

My market thesis is predicated with job's data as a leading indicator towards US economic growth. Although Friday's number was weak, there are a few macro conditions to keep in mind:

1. the weak jobs number was still a growing number

2. SP500 earnings are still growing

3. no anticipation of US recession

4. few potential "market-shocks" left (Although any idiot bureaucrat/politician can always say something stupid, and the markets can decline.)

The central banks across the world are trying hard to prevent shocks and facilitate growth.  Before they were doing this (from 2008-2012) the SP500 was trading below the historic norm of trailing PE (15).  The markets kept trading at a discount even during economic growth because of the potential EU shocks.

My thesis for the market is calling for a 'new dynamic', where the SP500 will begin to trade between 15-17.  Because of the above, I still believe this dynamic is still in play. But with the collapse of the treasuries, the markets will be hard pressed to push toward a trailing PE near 16, let alone 17.

A weak signal to the US economy should keep the market near a trailing multiple of around 15.

Now that Q1 is completed, the anticipated trailing EPS for the SP500 is 100-101.  With a trailing PE of 15, the market could hover around (100x15) 1500.

Structurally, the supports for the SP500 are highlighted below:

On Friday, the SP500 bounced off the initial SMA support. Next stop is the 62SMA on the daily.

The longer term trends suggest we can pause around the monthly support via the triple top break out, near low 1500.

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