Today was one of the most classic ’sell the news’ sell offs that you can have. The pre market excitement was the unemployment report. On the surface it appeared great, unemployment was not as bad as people were expecting. So in the pre market, following that news the futures were bid up by bulls who were anticipating a super rally on this news. But, unfortunately it would seem that a lot of people playing in the market don’t understand charts or grasp the bigger picture. For if they did they would have known that the market has been topping out on this bear market rally. And in those situations the smart players take advantage of the lesser experienced players. What do I mean by that? Simple, people began buying stocks in the pre market thinking it was going to be a huge rally day. And, just as the market opened the market gapped up fairly significantly. But, this is where the professionals attacked. The pros started to unload their positions onto the the lesser experienced market participants willing to buy the market. And we have the classic sell the news.

I have written about this subject in the past. But what is important to remember here is that those who hold very large positions in the market need volume in order to unload their positions. They need the inrush of new buyers in order for them to unload their holdings so that they can get a decent price, otherwise if they were to unload these substantial positions into a light demand, the price they would get will be much less. This is how the market has worked since the very first trade on the NYSE in 1792. This is where we get the term "bag holders" from. Those who thought everything was going to go up ended up paying money for stocks from those who already had their way with the stock. And the new buyers are left holding the bag as interest in that stock now begins to evaporate and the prices begin to fall.

Anytime you have a market that gaps up at the open and sells off as the day wears on tells you this is what took place. And it also represents a classic pattern on a chart of a possible turning point. If the market closes lower over the next few sessions from where it closed today, then the ‘tape’ tells us that the reversal in building. These are the kinds of trading days that make many lose their shirts in the market. They buy on what they think is good news to only find out that they were ’set up’, they were buying stocks from people willing and anxious to unload huge amounts of those stocks because they see what is coming.

So why is it the market sold down throughout the day, and not rally on the better than expected unemployment data? Because the professionals know that this report is not indicative of the true conditions of the employment situation. We know this because of a very simple statistic, continuing claims. Yes, the continuing claims data has been steadily growing for months. This clearly shows us that unemployment is worsening as the number of people collecting unemployment insurance is growing. The mathematical formula that goes into giving us the monthly non-farm employment data relies on a ‘birth/death’ model. No, not people being born or dying. The birth/death model is the Governments estimation of how many new (birth) businesses are created each month vs. how many closed up or bankrupt (death) businesses there were. Those models are in part based on historical trends. And that part of the model is a lagging piece of data. Facts which are known are that business bankruptcies have increased greatly over the past 3 months as has been reported by filings. And the continuing claims of people collecting unemployment insurance is still growing. This is why the pros today eagerly took the money right out of the hands from those who thought this mornings report was going to sky rocket the market.

The market is a cruel and vicious place. Remember, Rebeltraders is all about helping YOU, and helping you to keep from getting caught in a trap. These are still very shaky times in the market. Caution and capital preservation is paramount! The announcement this morning that the Federal Reserve is opening the window even wider for banks to borrow money does NOT give us a good feeling about the financial sector. And, add to that today’s news that Standard & Poors downgraded CountryWide Financial (CFC) to ‘junk’ status is also another hit in the gut to the financial markets. There is still much more to come and unfortunately is does not look pretty in our assessment.

Check in over the weekend… Till then, everyone have a wonderful evening.

Kiss Credit Goodbye…

FED PROPOSES NEW RULES ON CREDIT CARD LENDING, TO PREVENT ‘UNFAIR OR DECEPTIVE’ CARD PRACTICES
- Says it would bar interest rate increases on existing balances, bar charges on balances from previous billing cycles, giving consumers ‘greater control’
- Reminder 4/29 WSJ reported that US regulators may implement stricter policies for credit card companies

More government regulation into credit markets will only make things worse.  Yes, these same "credit" companies that are screaming for government intervention are going to scream their way right out of business.  Idiots.

The indices managed to stay afloat, the VIX showing no fear in the market, as far as I can see.  My view remains the same. 

I guess Microsoft has tendered an offered of $33/share for Yahoo.  No word yet on whether Yahoo will accept.

Check in tonight for the wrap up of the day. On the charts today printed a ‘reversal’ pattern. From the technical stand point today was the top. We’ll examine this further in our wrap up.

There was a quick blip to the downside and here’s why:

CountryWide (CFC):    S&P DOWNGRADES CFC TO JUNK; CUT TO BB+ FROM BBB+

At least he’s acknowledging people may actually use that stimulus check to pay for food and gas:

PRESIDENT BUSH: JOB FIGURES SHOW THAT THE ECONOMY IS NOT AS ROBUST AS IT SHOULD BE
- Reiterates that economic stimulus will help people deal with rising food & energy prices, and food prices are high because farmers are passing along high cost of energy to customers
- Says ethanol use part of reason for higher food costs, but ‘not main driver’

AKS is increasing prices for carbon steel products by $75/ton.  The move is in response to increased demand for carbon steel products, as well as the need to recover unprecedented increases in steel-making inputs.   Higher commodity prices hurt everybody’s bottom line, squeezing profit margins, etc. 

Personal bankruptcies are up 47% from this time last year. 

"The sharp spike in consumer bankruptcies reflects the growing financial stress faced by American families, saddled with household debt and mortgage woes," said Samuel Gerdano, executive director of the institute. "We expect consumer bankruptcies to top 1 million new cases this year".

For all of 2007, there were 850,912 U.S. bankruptcy filings, up 38 percent from 2006.

Federal Reserve statement doesn’t make it sound like everything is rosy in "bank land", but they assure us they are excluding CDO’s, CLOS and CBOS from the TSLF-acceptable collateral.  Oh, now I feel better.

The dollar is trying to hang on to it’s rise, but gold is rising, too.  Equities are all over the place, confusion reigns and selling into the rally is still the order of the day.

I should mention, and hope I’m not late in saying so, but how do you feel about the market’s move today?  If you are trading, it shouldn’t matter! Get those emotions out of your trades!  Traders will get angry  if the market moves against their positions and they can make stupid mistakes (are there smart mistakes? )  If one isn’t long when the market races to the upside, one may buy stocks, feeling left out.  If one is short, they may short even more, out of spite.  If you feel any of these types of things, please do not trade anything!  Stay safe out there and remember to stay calm.  Now breathe, people, and get back to being objective.  Plan your trades, trade your plan.

MARCH FACTORY ORDERS:   1.4% V prior revised -0.9%

FED SAYS BI-WEEKLY TAF AUCTION TO INCREASE TO $75B FROM $50B
- Expands collateral under the TSLF to include AAA-rated asset backed securities
- FX arrangements with the ECB boosted by $20B
- FX arrangements with the SNB boosted by $6B
- Cites persistent liquidity pressures

The Fed "cites persistent liquidity pressures", but I thought this was about over?  The Fed is taking even more types of collateral.  It’s becoming the official dumping ground (that’s you and me, by the way, taking all of this garbage).

The market players are all excited today.  The USD is up and holding, but Gold is hanging in there, too.  Looking at the charts, I see that selling into the rally is still on traders agendas.  We’ll just have to see how the day progresses, but I’m holding steady in the market views we’ve previously stated.  There hasn’t been anything presented, so far, to change the fundamental outlook.

APR CHANGE IN NONFARM PAYROLLS: -20K V -75KE; CHANGE IN MANUFACTURING

PAYROLLS: -46K V -35KE
- Prior Nonfarm Payrolls revised  from - 80K  to -81K

APR UNEMPLOYMENT RATE: 5.0% V 5.2%E

AVERAGE HOURLY EARNINGS M/M: 0.1% V 0.3%E; AVERAGE WEEKLY HOURS: 33.7 V 33.7E

Wow, how about those numbers. Job losses are still in the negative column but not as

bad as expected. Retail and manufacturing continue to get hit hard, while government

employment is up. Strange, states with the budget problems are laying off employees.

Our view remains rather firm, the employment situation is still getting worse. It will be

reflected in the long term trend.

And earnings are still heading down.

Moody’s economist has this to say this morning:

The April jobs report came in much stronger than expected. That said, the report still paints the picture of an economy

that is bleeding jobs. Jobs losses in housing and consumer-related industries remain especially severe.

Given the level of housing activity, housing-related job losses have more room to go and average monthly

declines of 60,000 jobs (the average of the past six months) are not unlikely in the near-term.

Weakness in retail industries are signal of stretched household cash-flows and growing negative wealth

effects. As housing wealth evaporates, access to home equity is shut and jobs are being lost, the outlook for

retail payrolls is unlikely to get any better.

That payrolls are holding up better in industries such as professional and business services and education

and health care are positive, but should not lure us into a false sense of security–these industries are far

less cyclical than most other sectors of the economy. Outside of these two sectors, the economy has

shed over 120,000 jobs in April.

Today’s report does not change the view that the economy is in for a protracted period of weakness.

Home construction is still a major drag and more layoffs are likely among builders. Massive amounts of

foreclosure sales are expected to hit the market this coming summer, which could lead to an acceleration

in the pace of house price declines, magnifying negative housing wealth effects. And risks remain around

the view that emerging economies have decoupled from the U.S. and that exports will remain robust.

Financial markets remain shut, credit availability seems constrained and weakness in business

confidence is appears to be weighing increasingly on business’ investment and hiring decisions.

Against this backdrop intensifying job losses in coming months are not unlikely. That said the pace

of monthly layoffs this time around is expected to be less than the historical average, as businesses

(outside of housing-related industries) were cautious and prudent in their hiring decisions in recent years.

The flip side of measured hiring during the good years will be measured layoffs during the downturn.

Futures went up on this news. They went right up to the resistance at around 1425 and have bounced back some.

The S&P 500 will be the key index to watch today. If this results in a gap up candle on the charts, and then gets

locked below resistance (see the S&P weekly chart on the left side of our web site), and sells of into the close

then we will have painted a very bearish candle. It would mean an exhaustion gap up. However, if it does not sell off into the close

then we will wait to see how it consolidates under that level before determining our next move.