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Too tricky to call!

We’re trying to be bullish now, so we don’t complain about stick saves and we got a nice one into yesterday’s close and another one in the futures, which were down about 50 at 3am - but it still looks like BS to me.

On Thursday morning I said: "Our 5% "must hold levels" remain: Dow 10,165, S&P 1,088, Nas 2,200, NYSE 7,000 and RUT 620 with 3 of 5 below = BAD!" We got the Dow, S&P and the NYSE back over the line yesterday and now we need the Nasdaq and the Russell to show us the money and catch up. Of course, this is just our "averting disaster" levels - we haven’t even broken our "weak bounce" targets of: Dow 10,300, S&P 1,105, Nasdaq 2,225, NYSE 7,100 and Russell 625 that the 5% rule predicted in last Monday’s post.

Last Wednesday I asked the question, is it weakness or good old fashioned consolidation? My premise was that commodities were overvalued and we were due for some rotational correction, which was GOOD and HEALTHY. The market still has much to prove and we are still pursuing disastrous economic policies that will all end in tears but, in the meantime, we can still party like it’s 1999 as long as we know where the nearest exit is - and that’s what our Disaster Hedging is all about.

We took positions on DXD and QID yesterday as the weak bounce we got was a good chance to establish new hedges and I’m hoping we get another push in commodities so we can short some of them. EDZ is getting interesting again, back at $5.65, about 10% away from our sweet spot ($5) for taking up a position but we may hit them early if the US indexes can’t provide some leadership this week. As you can see from Trader Mike’s charts - we have plenty of resistance to get through and we’re still waiting to see a rise on anything but weak volume to give us more confidence.

Germany gave our confidence a small boost this morning as Retail Sales, adjusted for inflation and seasonal swings, rose 0.8 percent from November, when they dropped a revised 1.7 percent. Germany’s government this month raised its forecast for 2010 economic growth to 1.4 percent from 1.2 percent. While the economy is still grappling with the aftermath of its worst recession since World War II, the government has extended subsidies that encourage companies to hang on to workers, helping to limit an increase in unemployment.

Wow, what a concept - instead of letting them get laid off and lose skills and sit on the couch collecting government checks, the government pays to KEEP PEOPLE WORKING, which also helps the company by lowering their costs without sacrificing their ability to get sales moving again. This news pulled German bonds back from crossing the 3.25% mark but the low rates’ days are numbered (have I mentioned I like TBT lately?). “As the economy recovers, there will be some normalization of rates in Europe towards the third quarter of this year, creating a jump in yields in the second quarter,” said Michael Rottman, head of fixed-income research at UniCredit Markets & Investment Banking in Munich.

Of course it’s Groundhog Day today. The movie "Groundhog Day" is one of my all-time favorite films and our foreign readers would do well to remember that we live in a country where thousands of people actually do gather each February 2nd in a small town in Pennsylvania where a dozen men in tuxedos pull a rodent out of a box to see how much longer winter will last based on whether or not it sees its shadow.

Perhaps the little ritual itself isn’t that strange, but how seriously people in this country take it is downright weird!

In the movie, Bill Murray is forced to live the same day over and over, much like the trading range the markets have been stuck in since October. There’s nothing wrong with being in a trade channel if you learn to recognize the tops and bottoms - that’s why it’s so important we watch our breakout levels and don’t overcommit as we near the tops or bottoms of the range. As I often say, "if there’s a real market rally, we have all the time in the world to participate" so we scale in slowly here, looking to see if we hold these levels but anticipating a very possible test of the 200 dmas - about 5% lower than we are now.

[spain0202]Every day is looking the same for 18.83% of Spain’s working population, who have to line up at the unemployment offices for their checks. Spanish jobless claims rose by 3.1% to 4 million in January from December, January jobless claims were up 22% from a year earlier. We’ll be getting our own Non-Farm Payroll Report on Friday and it’s anticipated we "only" lost 40,000 jobs in January, with a 10.1% national unemployment rate so IN YOUR FACE, SPAIN!!! Of course, Spain counts all the people who can’t find jobs as unemployed while we don’t count people who time out of benefits or get tired of looking after 12 straight months of rejections or accept menial jobs in order to put food on the table.

Best of all for US statistics is the fact that we don’t worry that the Average Workweek for the 138M people who still have jobs (yes, I’ve been using 140M and have had to adjust it down) is all the way down to 33.2 hours while hourly earnings remain flat (and losing ground to inflation). So 138M people who work 1 hour a week less than last year for the same hourly pay is ANOTHER 4M jobs worth of phantom unemployment - or the entire unemployed population of Spain tucked under the rug of US labor statistics.

Step one in a 12-step program is admitting you have a problem - OUR LEADERS HAVEN’T EVEN DONE THAT YET! Other steps include making a decision to turn our lives around (not just rhetoric), making a list of the people we have harmed and making amends (Lloyd Blankfein will be busy with that one!) and, of course, taking positive action to correct the problem (not with this Congress). I don’t recall any of the steps involving holding filibusters or fudging data but maybe I missed that meeting…

Speaking of data - we have Auto Sales today, and tomorrow is the ADP Report along with Challenger Job Cuts and ISM services. Thursday is the usual Unemployment Data plus Q4 Productivity, which should be up again as workers skipped Christmas rather than risk losing their jobs. December factory orders are bound to be a disappointment as nobody actually bought anything to cause the need to restock. All that leads us up to the mighty NFP Report on Friday and we may get an upside surprise as the Census has just 6 months (including this one) to hire 2M people - that’s over 300,000 people a month that should be added for the first half of this year (and then let go into Christmas - FUN!).

Asia was wishy-washy this morning and Europe is up half a point but led by bouncing commodity pushers (talk about a planet that needs a 12-step program!) but that doesn’t matter very much, as everyone is set to follow our lead this week. Hopefully, we continue to have sensible consolidation in the range I outlined on Saturday and perhaps we can see enough data and earnings this week to convince us the World won’t be ending this quarter - THAT would be a positive first step!

Source: Testing Tuesday: Back to Bounce Levels?