Bulls Battle Back

I don't know if this is a short-covering rally or if the bulls have managed to battle back to the flatline today, but it is certainly a bullish sign that following such horrendous job and employment news, the stock market indexes have pulled back to positive territory thus far today. It will be interesting to see if, over the next two hours, the longs are willing to hold those positions over the weekend, or if negative sentiment will lead them to liquidate again instead. Anything can happen in the last hour of trading.

My gut instinct tells me that Wall Street is erroneously assuming that the worst just has to be over, that all the bad news is now priced into the market, and that therefore the market just has to go up now. It is true that many of the largest stock market rallies in history have been bear market (sucker's) rallies. I'm convinced this is more "irrational exuberance", to put it in Alan Greenspan's terms. Just because stocks have dropped a lot doesn't mean they now just have to go higher. What goes down can still go lower, and I suspect that in time, it will!

Unemployment is Worse than the Headline Indicates

The true unemployment numbers are far more horrific than the headline this month. The household survey showed -673,000 jobs lost last month. Furthermore, The BLS' unemployment statistic has a strong tendency to be understated during a recession. This is baked into the cake due to the way the BLS calculates and makes adjustments to the figures. That's why the September and October figures were revised strongly downward. It is very likely that next month, the November figures will also be revised downward. And December is starting off like a nightmare too. In the first five days of December, we have also seen job cut announcements by large corporations of more than 300,000 jobs to be eliminated this month. If that pace continues throughout December, the November figure we saw this morning will seem like a paltry pitance compared to what's yet to come! Over the weekend, John Mauldin will report some of the internals beneath the headlines. I'll post some of his newsletter, or a link to it, here.

Frequently, I will take a lunch break at this hour of the trading day and return again to trade the volatility of the closing hour of trading.