Morning Musings From Art Cashin

From UBS Financial Services

The Bulls Have It All – Except The Volume – The bulls hit a lot of target points but they came up short on the volume.

They held the rally after the opening process was complete. More importantly, they held onto the rally gains after the European markets closed. They even held on to those gains when the dollar began to rally late in the day.

Many of the internals were impressive. Advances beat declines better than 17 to 1. Up volume beat down volume by 28 to 1. Yet the overall volume failed to reach the levels seen in the sharp selloffs of Thursday and Friday.

Another frustration for the bulls shows up in the metrics of buying power versus selling pressure. It improved somewhat but remains on the “market correction” signal triggered last Wednesday.

Net/net, it was a terrific rally but no quite the unalloyed victory for the bulls that some media pundits claimed to see.

Dissecting The Somewhat Suspect Payroll Data – As we suggested in yesterday’s Comments, Friday’s non-farm payroll numbers got swallowed up by the on-going worries about Greece. But, the “jump” of 290,000 new jobs was a big topic on the weekend talk shows. There was a lot of “we’ve turned the corner” portrayals.

Longtime readers know I’ve thought some of the improvement in the data was “suspect” (to be kind). For the last eight weeks, Initial Unemployment Claims have averaged 450,000 per week. So, over the last four weeks, 1.8 million people were laid off. How does that fit in with the claim that 290,000 new jobs were created? The obvious answer is that it doesn’t.

So, let’s drill down into the payroll numbers to see what’s going on. The CES Birth/Death adjustment added 188,000 of those jobs. Birth/Death does not refer to people but to businesses. The BLS guesses how many new companies opened versus how many closed their doors. The BLS then uses that guess to guess again how many jobs those business created or lost.

Another 66,000 of the new jobs came from census hiring. Those are temporary jobs and those folks will be laid off later in the year. Speaking of temporary, another 26,000 of the new jobs were non-census temporary. Let’s recap. A guess produced 188,000 of the jobs, 66,000 were census and 26,000 were temporary. Thus, it seems 280,000 of the 290,000 “new jobs” were either temporary or the result of guesswork. Some turn. Some corner.

Cocktail Napkin Charting – Yesterday’s action was, in some ways, a napkin technician’s delight. In addition to the metrics cited above, Monday’s rally hit a lot of key points.

In Monday’s Comments, we said the napkins suggested resistance in the S&P around 1160/1163. Yesterday’s intra-day high was 1163. Interestingly, the 55 day moving average (DMA) closed last night at 1165 so we are in a key target area. Stockmarket Cycles notes that the 55 DMA in the Dow Jones is currently at 10,799.95. The Dow closed at 10785. Again we’re in interesting territory.

Further, Walter Murphy points out that Thursday’s lows mark a (Fibonacci) 61.8% retracement of the February/April rally. That may give some hope to the bulls.

For today, the napkins suggest resistance in the S&P at 1165/1168. Support looks like 1136/1139. Recall that on Thursday, the selling began to accelerate when the S&P traded below the 1145/1150 band.

Net/net, we are in important territory for both the bulls and bears. But, with the previously noted “correction” call still in place, we’ll keep the caution flag flying.

Rescue Package – Yes. Deflation – Maybe – Andy Lees, UBS’s sharp-eyed observer in London, reports that M3 levels are now down 5% year over year in the U.S. That’s the lowest since records began in 1960. In Europe, M3 growth is down 0.2% year over year. China’sM2 growth has slowed to its lowest growth for the year.

No wonder the Fed opened currency swap lines. M3 shrinkage may put strong upward pressure on the dollar. The Fed may feel it needs to offset or, at least, temper that.

It may be a new story worth watching.

Sunspots Spotted Yet Again – My ham radio pal sent us the latest group of sunspot numbers and activity really picked up.
The sunspot numbers for April 29th through May 5th were: 0, 12, 13, 47, 61, 70 and 77. So, we start with no spots; have a single weak spot for the next two days and then spots begin to flourish. The 77 reading was the highest single day number in four years.
Let’s see if they’ve broken the drought. We’ll need weeks more data.

Consensus – Watch the streets of Athens – especially tomorrow. Sheen wearing of rescue package as cost of austerity measures begins to move into focus. Stay very, very nimble.

Trivia Corner

Answer - The battle that inspired more books than any other was not Gettysburg nor the Alamo. It was Custer's Last Stand - the Little Bighorn.

Today’s Question - Since you think it's easy, let's try - It's in code again. Kids sometimes send secret messages using numbers for letters. Math students do the reverse. Solve the following math problem in which letters substitute for numbers. (Hints - logic is more important than math and if you give a letter a value, it must keep that value all through the problem - so if V = 6, it always equals 6.)


On this day in 1752, an historic moment in American home safety and corporate life took place. It was on this date that the Directors of "The Philadelphia Contributorship for the Insurance of Homes" held their first meeting. They adopted the corporate seal, picked the corporate motto ("hand in hand") and issued the first homeowners fire insurance policy.

Ironically, no one would have risked writing a fire insurance policy in 1752 had it not been for something that happened on this day 105 years earlier. For on this day in 1647, a certain Peter Stuyvesant stepped out of a long boat to become Governor of New Amsterdam. And like many new-comers to New York ever since, he had trouble sleeping the first night because of the sirens - actually in Stuyvesant's case it was fire alarms.

While we tend to think of colonists fighting off Indians, cold winters and strange diseases…..the colonists tended to worry more about fire. And with good cause. At least until Stuyvesant. Tired of both fires and false alarms, "Peg Leg Pete" set out some new rules. No wooden chimneys. He appointed four house inspectors to check fireplaces and chimneys and to impose fines if structure or upkeep were shoddy. He used the fines to buy hooks and ladders and leather water buckets. He used these to outfit an eight man nightly fire patrol that Manhattanites called "The Prowlers" (unofficially prowlers continue in New York till this day).

Stuyvesant's rules were so successful they spread north to the English colonies. In 1649, Boston tried to ban all indoor fires between 9:00 p.m. and 4:00 a.m. However, an uprising by bakers and other Bostonians with cold buns got the law repealed. Nevertheless, the move toward fire safety kept growing until insurance became practical in the next century.

To mark the day stop by Ye Olde Firehouse Tavern and have a quencher or five with a crusty old governor who drinks like he has a hollow leg. But don't say anything inflammatory.

The market was on fire, Monday, as shorts scrambled to react to the massive “rescue package” announced by European authorities. It was not all short covering, however. If it was, the rally would not likely have lasted all day long.