Rally Time Turns to SLAM Time!

by Larry Levin

Slam-o-la! Friday reaction to the unemployment news and the latest spike in oil was just a tad shy of Armageddon-like. What will Monday bring?

On Thursday I said, "What a rally!" The market was able to ignore an incredible amount of negative news today after the S&P refused to break below significant support of 1370.00 yesterday. Was today just a Pollyanna rally? Does somebody (firm) already know tomorrows jobs data? Has this multi-week congestion finally come to an end? Perhaps we will get the answer in tomorrow's employment number.

It looks like we got a few of those questions answered; nobody had the employment data early, it was a Pollyanna rally, and the multi-week congestion was finally broken ???'??€???????????lower.

The US unemployment rate jumped to 5.5% in May, which was the biggest monthly rise since 1986, as nervous employers cut 49,000 jobs. The latest snapshot of business conditions showed a deeply troubled economy, with diminishing job opportunities in a time of continuing hardship in the housing, credit and financial sectors. The biggest one-month jump in the rate since February 1986 left the jobless rate at its highest since October 2004.

Although for the average American there is not debate that the economy is in a recession, said Mark Zandi, chief economist at Moody's Economy.com. That's because their net worth is lower, their purchasing power is lower and it is tough to find a job. If you lose a job, it is tough to get back in, he said.

I wonder if the market's inability to find buyers Friday was partially the result of professionals throwing their hands up with the BLS (Bureau of Labor & Statistics) statistics. The details of the BLS's employment model once again calls into question the accuracy of the report like inflation reports. The BLS should be embarrassed to report the following data; its model suggests that there were 42,000 jobs coming from new construction businesses, 23,000 jobs coming from professional services, and a whopping 217,000 jobs in total coming from net new business creation. The economy has slowed to a standstill, yet the BLS model still has the economy expanding quite rapidly.

With housing falling like a rock and commercial real estate now doing the same, the BLS is assuming that 42,000 new jobs were added in construction. With lenders blowing up and countless self employed real estate professional exiting the business the BLS is assuming 9,000 new jobs were added in financial activities and 23,000 jobs from professional and business services. The total number of jobs added in May by these absurd assumptions was 217,000 jobs. It's just another example of cooking the books, or poor statistical models you decide.

But that report was only part of the reason for the sell-off: oil prices made their biggest single-day leap ever on Friday. Oil spiked over $11.00-barrel, and that is after what we thought was a large pop on Thursday of $5.49. During just the last two days of the week, oils ascent reached an amazing 13% gain. To put that in perspective, it would be like the Dow gaining 1,690-points form 13,000 in just two days.

This surge came on the heels of Morgan Stanley's analyst Ole Slorer who predicted strong demand in Asia and tight supplies in the Western Hemisphere could drive prices to $150 by the 4th of July. Hello $4.50-gasoline and $5.00 soon.

Another slide in the dollar further drove oil's rally. The dollar was hit by the weakness of the jobs report and a jump in the euro, following hints that the European Central Bank might soon lift interest rates. And a weaker U.S. dollar makes dollar-denominated commodities, such as oil, cheaper for holders of other currencies.

With all of this news many pundits were wondering what the Fed would/should do. More rate cuts they wondered? That's not likely since that would further drive oil and inflation in general, higher. So now it looks like Bernanke was a little "premature" with the earlier rate cuts and now has little ammunition left. Of course, he has shown some Fed-creativity in the past. That made me look up "Fed-creativity" in a 13th century French dictionary: confiscate from the middle class.

Real Time Trading Signals*for

Trade Date: 6/6/08

E-Mini S&P Trades*
(before fees and commissions):


1) PP buy @ 9:00am at 1388.50 = -2.00 (1 lot)

2) OTF sell @ 11:30am at 1381.25 = b/e (1 lot)

3) Engf sell @ 1:30pm at 1370.75 = -2.00 (1 lot) stopped at HIGH tick!

4) Algorithm trades (5)combined total +6.00

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 8:37am at 757.3 = +1.3 (1 lot)

2) Buy @ 11:07am at 748.9 = +.4 & +1.4

3) Sell @ 12:24pm at 748.0 = +.5 (1 lot)

4) Sell @ 1:20pm at 745.1 = b/e (1 lot)

5) Buy @ 1:36pm at 744.6 = +.1 (1 lot)

6) Sell @ 2:18pm at 746.4 = +.5 (1 lot)+$420.00



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