It Talks Like A Bull, It Walks Like A Bull ….. But Is It Really A Bull?

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Clear and unmistakable recession signals from the labor market….. This magnitude of a rise in the unemployment rate has never occurred in the post-war period without the economy being in recession.

Bear Stearns

This economic slump is going to be a long, grinding one, and a ‘v-shaped’ recovery appears quite unlikely.

Joshua Shapiro, MFR Inc.

Trends are awful; unemployment will keep rising, squeezing spending.

Ian Shepherdson, High Frequency Economics

The spread of labor market weakness bolsters the case for a recession this year and is among the most troubling aspects of the report.

Drew Matus, Lehman Brothers

Very interesting stuff going on the last couple of weeks.

This morning the BLS said that non-farm employment dropped by 80,000 in March.  February job losses were revised down from -63,000 to -76,000 (March Jobs Report).

Honestly, I would have thought that such an ugly report would have meant the end of this rally.  But it hasn’t.  In fact, after trading down at the open, the major indexes have reversed and are now all well into positive territory.  The S&P 500 is up about 10 points to 1380.

Kirk suggested such a possible reaction to the jobs report in a post yesterday after the close: “No Downside Risk?”, Thursday April 3, 6:34pm EST.

What this suggests is that many think the bottom is in.  The conviction to buy in the face of such bad news today, Tuesday and generally in the wake of the Bear Stearns bailout 3 weeks ago, is impressive.

Clearly, the recession that hasn’t begun yet is over.  At least, that’s what all the folks who never saw the recession coming, then decided we were going to have one, and who now say it’s over, believe.  I know because I heard them say so on TV, time and again.

Helene Meisler 

….. we’ve seen this kind of market before. For example, back in 2001 the S&P 500 carved a short-term bottom in March and manage a very strong Spring rally until May only to give back those gains later in the year (and didn’t bottom out until 2003). After trading that market aggressively back then, I can tell you from experience that the bottom callers were out in full force on every one of those counter-trend rallies just like they are now and it was never easy to restrain from getting too bullish at the top end of the longer-term downtrend. Counter-trend rallies always suck in people at the worst times as people think the “all clear” signal has been provided.

– Charles Kirk, “Mailbag”, Friday April 4, 2008

But I’m still not convinced.  Stocks are now extremely overbought with the % of NYSE stocks trading above their 200 day moving average at a higher level than either of the previous two rallys we’ve had this year (% NYSE Stocks Above 200 DMA Chart).

And we’re still facing enormous resistance at 1400

At this point I have to concede that a break above 1400 does look possible.  I wouldn’t have thought it but the sentiment shift we’ve seen over the last 3 weeks appears to be pretty widespread.

That said, let’s step back and get some perspective.  This rally has been built on: the bailout of Bear Stearns, a 75 basis point cut by the Fed, a $19 billion writedown by UBS and a -80,000 Jobs Report.

A rally depends on the interpretation of these events as being so bad, so climactic, that they must mark the bottom.  But we heard the same thing during the Sucker’s Rally of August 16 2007 – October 11 2007.

To me, this represents the perpetual triumph of hope over experience.

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