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Bullish Employment Data on Tap?: Dave's Daily

That's the buzz making the rounds on the street -- unemployment data is going to be a gonzo number.
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That's the buzz making the rounds on the street--unemployment data is going to be a gonzo number. Obama already suggested as much Wednesday saying employment will show good jobs growth. Of course, the president already has the number. It admittedly will be loaded with census workers and other government workers. Goldman Sachs raised the outlook from 500K jobs added to 600K. Bullish headline writers are geared-up to post the "headline" numbers without looking too deeply inside the numbers. Some have suggested we could see growth of 700K jobs.

One thing about the unemployment report most aren't aware, are the manipulations common to the so-called birth/death model. These, as stated previously, are just estimates as to how many people are entering unemployment rolls (birth) and those who have given up looking and/or whose benefits have expired (death). These can be, um, adjusted to suit political considerations. Former president Lyndon Johnson used to habitually return data he didn't like to the authors for revision. Then, once the results suited him, they'd be released. Nowadays we do things with greater subtlety like employment, inflation data and other statistics subject to revision.

The bottom line: it's what you believe so managing the public's psychology has never been a more prominent imperative.

Jobless Claims data released today did not offer any good news beyond being somewhat lower than the previous week's high reading. These readings show an employment picture cruising along the bottom somewhere near the BP well. ISM data was below expectations as were Factory Orders. None of this made an impact on headlines to slow momentum from yesterday.

Markets therefore are poised to do something dramatic tomorrow if the whispered good employment data comes through. Thursday featured little volume with prices camped waiting for Friday. Breadth was positive once again.

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

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The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

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The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise. Fear is falling some but let's see what Friday brings.

Continue to Major U.S. Markets

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SPY:

The situation is simple. Volume is light as we move higher repeating a familiar pattern for this market. A trading range is apparent but a closer look at weekly charts shows the "potential" for a right shoulder forming which is bearish. I only point this out since I'm not an aficionado of using these since you can see them often without result.

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MDY & IWM:

Both these sectors are demonstrating more strength than SPY for example but this is only a very recent phenomenon since its routine on rallies.

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QQQQ:

Obviously this sector demonstrates leadership since innovation leads demand and that's what a company like Apple has provided.

Continue to U.S. Market Sectors, Selected Stocks & Bonds

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FDN, GOOG, EBAY

: The internet sector was strong today and was led by a few old reliable names Google and eBay.

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MSFT & DELL

: Microsoft strikes me as just a utility without the dividend benefit. It would be nice if they declared a dividend since they have the cash and not doing anything new it seems. Word on the street for DELL is the company is considering going private.

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XLB. AA & DOW:

Materials sector is a big worry and it's tied to declines in base metals and industrial demand from overseas including China.

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XLY, DIS & F:

Disney and Ford are leaders but I can't really understand the latter's inclusion in the index since we just don't buy cars that often.

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IEF & TLT:

Two Fed governors Hoenig and Lacker were talking today about raising interest rates sooner rather than later.

Continue to Currency & Commodity Markets

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$USD/DXY, UUP & FXE:

TheStreet Recommends

We're back to levels where central bank intervention was strong. What will a strong U.S. jobs report do for Bucky tomorrow?

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GLD:

Gold is being hit by sellers who wish to move out of the metal and into stocks as risks ease. Some believe its an orchestrated bear raid by agents for the central banks. Further, the thought that the Fed would raise interest rates more quickly if jobs growth is exaggerated would hurt gold.

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DBC:

The commodity tracking ETF was helped some Thursday by rising energy prices.

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$WTIC/CRUDE OIL:

Oil spiked late in the day on lower than expected energy inventories.

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XLE & BP:

Downtrodden energy issues rallied today in hopes that the gushing well will be closed. Once that happens then all will be right, right? Then it will be just perp walks and courtrooms.

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DBB:

It should be of great concern that base metals prices are falling this sharply since a decline such as this indicates slack industrial demand. We are more than just a world of iPads right?

Continue to Overseas & Emerging Markets

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EFA:

Turbo Tim Geithner indicated today that U.S. growth momentum will overwhelm any concerns about Europe. You believe him right?

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EEM:

It's a little surprising seeing the sharp declines in base metals to see this sector higher. Perhaps it's just my own disconnect.

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EEB:

To save some time here's EEB which takes all the BRICs into consideration. Why save time here today? Because the action will be fast and furious tomorrow I would suspect.

Continue to Concluding Remarks

On a positive note, one thing that revives and energizes bull markets is innovation. It's what the U.S. does best. Where would markets be today without Apple's great achievements? From my view markets would be stagnant at best. So let's always remember technological innovation and new product development creates demand and stimulates bullish action and economic growth.

Depending on your view, the ammo to rally stocks sharply higher isn't as available as one might think. According to the Investment Company Institute the outflows of money from equity mutual funds (nearly $17 billion) was enormous in the month of May. That seems quite negative for bulls but many believe retail investors are always wrong.

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Tomorrow will be a big day given the employment report. It's much ballyhooed by bulls as they believe investors will only look at the headline number. Jobs growth would be great if it was real but cynical me believes garbage in, garbage out.

Let's see what happens. You can follow our pithy comments on

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Disclaimer: Among other issues the ETF Digest maintains positions in: GLD, DGP, UUP, EUO, EFZ and EUM.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at

www.etfdigest.com

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Dave Fry is founder and publisher of

ETF Digest

, Dave's Daily blog and the best-selling book author of

Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management

, published by Wiley Finance in 2008. A detailed bio is here:

Dave Fry.