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Unemployment And Derailing The Stock Market

09/12/12 10:57:07 AM
by Billy Williams

The jobs report falls short -- can it drag the market down and derail the bulls?

Security:   SPX, LULU
Position:   Buy

The market hesitated to go higher with any real conviction on Friday after disappointing job numbers came out from the US jobs report, showing a less-than-expected 96,000 jobs created rather than the 125,000 jobs expected by Wall Street. The major indexes were up nonetheless, with the Standard & Poor's 500 (Figure 1) gaining six points on lower volume along with 14 points gained by the Dow Jones Industrial Average (DJIA).

The anemic job growth is a worldwide dilemma now that is plaguing the major industrial powers, but all eyes are centered on the world's largest consumer population residing in the US. Without American consumers spending money, the rest of the world's manufacturing engine has slowed to a crawl, with many analysts concerned that it may come to a screeching halt.

A working American middle class isn't just important for the world and the economy, but also for the US Treasury, which has been a long and steady diet of meager tax revenues. Until the job market turns robust, any economic growth will be anemic at best.

Still, the stock market is the best indicator of future prospects as the indexes reflect current sentiment by both the amateur and the professional investor alike. Any worry, anxiety, euphoria, or hope will be reflected in the price action and, so far, it seems that the market is continuing to climb higher, indicating that it has, for the moment, discounted any negative prospects on the horizon.

FIGURE 1: SPX. Disappointing job numbers kept the SPX from trading higher along with lower volume. Will the lack of jobs curb the bull's enthusiasm and derail any attempts at a rally?
Graphic provided by:
Lululemon (LULU), an apparel store for high-end yoga gear and sports apparel, is an example of a company that is continuing to log impressive fundamental gains despite the looming fear of a slow economy. Today, it announced that second-quarter earnings were beat and revised its annual full-year outlook, resulting in a strong surge in price movement, gaining over 12% on higher volume. The stock has been working its way out of a steep decline and appears to be building the right-hand side of a cup pattern as its price base.

The compelling fundamental and technical criteria show you that LULU should be on your watchlist of potential stock leaders as it works its way higher and continues to log impressive sales growth.

FIGURE 2: LULU. LULU rocketed higher on enormous volume, building the right-hand side of a potential cup base pattern.
Graphic provided by:
Other stocks to watch as the market continues to climb is Annie's (BNNY) and Questcor Pharmaceuticals (QCOR). BNNY has traded up through its $44.78 buy point on higher than normal volume -- 127% over the average volume and well above the 40% rise in volume required during a breakout. BNNY had its initial public offering (IPO) a few months ago and unlike many IPOs that flop, BNNY has shown positive technical results by building its price base since the initial offering and looks to be heading higher.

QCOR rallied hard on Friday and closed well below its intraday high but still gained 3%. Like BNNY, QCOR appears to be building the right-hand side to a cup pattern after announcing it would receive higher profits for its drug Acthar, and government approval to pay lower Medicare rebates.

Sadly, Mellanox Technologies, Ltd. (MLNX) has tumbled and looks as if it will trade down to its 50-day simple moving average (SMA). If the market continues to hold up and MLNX avoids a steep distribution, the stock could find support at the 50-day SMA and may be worth buying on the pullback.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

E-mail address:

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