Jobs report rally, post Labor Day issues

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Stocks rallied nicely on Friday after a mixed jobs report. The Dow jumped 97-points and the TSP stock funds were up 1.3% to 1.8%. The bond fund was down 0.3%.

The number of jobs lost in August was 216,000, about 14,000 fewer than expected, but the unemployment rate jumped back up to 9.7%, more than expected and the highest rate in about 25 years.

Traders were able push stocks higher, but volume was not just light. It was the lightest trading day of 2009. Volume should pick up this week and we should find out what the big money really thought about the report, and the economy going forward.

I have to say that, doing my research this weekend, I am very hard pressed to make a call. We are seeing very mixed signals in the indicators, data, and charts, that I am about ready to flip a coin. Let’s take a look…

The S&P 500 rallied over the last two days, at least temporarily making a lower low on the chart. That’s good. The bad news is that the PMO indicator is on a sell signal, and the MACD has now made a lower lower giving us a negative divergence in that indicator.

The good news is that the moving averages (20, 50, and 200 EMA’s) are all lined up nicely with the S&P 500 trading above all of them, and the faster EMA’s being above the slower EMA’s. The bad news is the rising wedge pattern that the S&P is now in, tends to break to the downside.

Chart provided courtesy of, analysis by TSP Talk

The good news, last week’s TSP Talk Sentiment Survey came it at 40% bulls, 45% bears for a 0.89 to 1 bulls to bears ratio. That is a pretty decent buy signal. The last time we saw a reading below 1.0 to 1, the S&P 500 picked up 7% on the week (July 13 to July 17).

The bad news is, the three surveys prior to July 13 also saw ratios below 1.0 to 1, and the market was down 0.25%, 2.45%, and 1.93% during those weeks.

More on sentiment, and it’s not great news.

The smart money of the Wall Street Sentiment Survey went from a bearish percentage of 24% just a week ago, the lowest since January (bullish for stocks), to 58% last week. Their bullish percentage has also been dipping sharply (bearish for stocks).

Chart provided courtesy of, analysis by TSP Talk

The AAII Sentiment Survey (dumb money and a contrarian indicator) came in at a 1.0 to 1 ratio (bulls and bears both @ 38%) which is a pretty bearish reading for the herd (close to bullish for stocks).

Chart provided courtesy of, analysis by TSP Talk

The above survey is given on Wednesdays so last week’s survey was taken just prior to Thursday and Friday’s rally so I would have to assume that the dumb money is slightly more bullish now (which is more bearish for stocks).

Now let’s look at the put/call ratios: The dumb money (CBOE and Equity) have been steadily getting more bullish for many months, although lately they have backed off a little lately. On the other hand the smart money (OEX) is getting more and more defensive as the market moves higher. The smart money tends to hedge their investments more as the market rises.

Chart provided courtesy of, analysis by TSP Talk

The smart money’s 10-day moving average is now at its lowest point (most bearish) of the year.

The Smart Money / Dumb Money Confidence indicator from is at 38 / 63 respectively. Any time the the smart money is below 40 while the dumb money is above 60, this indicator issues a warning for stocks. Here we are again…

Chart provided courtesy of

We’ve talked a lot about September being a tough month for stocks historically, the worst actually. So, while I really like the action of the S&P 500 as far as its trend and its position in relation to trend lines and moving averages, I am a little worried about being too bullish given all of the above information.

I am not opposed to being a buyer of dips here, but I am also ready to pull the plug should the positives deteriorate, which unfortunately is a good possibility.

Thanks for reading!

Tom Crowley
TSP Talk.

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