Markets are showing a lot more incoherence as institutional investors and traders struggle to guide their trading decisions through a bull/bear outlook. Then there is the shift between short term high frequency hedge fund traders buying in weakness and shorting during dips as oppose to long term fund managers that look for value during market dips.

We are at all-time high for most markets so there is not much room for additional gains unless there is a good excuse from economic data or, geopolitical news to boost or dip the market. As you can see in the chart below the market just can’t get through 2120 level of S&P 500. There is a lot of resistance at this level.

S&P 500

Index Trader systems: As for our short term trading in the “Index Trader” systems, we are just going to look for a short term cycle low by the end of the month to enter into SPY(XSP in Canada) We will also give the choice for Dow and Nasdaq 100. It is not going to be probably a two to three weeks hold. Stay tuned for the signal.

Bond and Equity Portfolio Systems: As may have noticed we cashed out all our sector equity ETF positions, in our “Equity Sector Portfolio System”. In this system we track the movement and trading volume of 36 sectors of US broad market. Bonds are still positive and we are still noticing a large buying appetite for quality High-Yield bonds. Mutual fund companies still get the best high yield offering not the ETFs.

Our algorithms look for a balance between positive and negative volumes. We will not enter again until volumes turn around. Even though on Friday we had a huge rally, we still did not gain any positive sector. We will keep informing our subscribers with some logistics, so that they can gradually become familiar with our investment approach.

The following is the synopsis of last week activity gathered from Bloomberg;

The US market ended the week strongly with the Dow Jones Industrial Average gaining 267 points, up +0.93% for the week and closing above 18,000 again at 18,191. The NASDAQ reclaimed the 5000 level, gaining 58 points Friday to close at 5003. For the week, the large-cap S&P 500 rose +0.37%, the small-cap Russell 2000 gained a half percent, and the MidCap S&P 400 gained a third of a percent.  Canada’s TSX composite declined for the second week in a row, down -1.11%.

Developed International gained +0.61% for the week, but Emerging Markets lost -0.63%.  In Europe, Germany’s DAX was up +2.23%, France’s CAC 40 climbed +0.87%, and the United Kingdom’s FTSE was also up +0.87%. In Asia, China’s Shanghai composite had its first weekly loss in eight weeks, down -5.31% and Hong Kong’s Hang Seng was also down -1.98%.

In commodities, West Texas intermediate crude oil rose +0.35% to close at $59.47 a barrel.  Gold gained +0.85%, ending the week at $1187.20/oz., and silver tacked on another weekly gain, up +1.86% to $16.42/oz.

In US economic news, the April jobs report, released Friday, was the headline-grabbing item of the week.   Job gains rebounded in April as employers added 223,000 jobs.  This was a big rebound from a downwardly revised gain of just 85,000 in March. The jobless rate is now the lowest since 2008, down to 5.4%. The labor force participation rate ticked up slightly to 62.8% but still remains near multi-decade lows.  The broadest measure of unemployment, called “U-6”, fell to 10.8%, the lowest U6 number since before the financial crisis and down by 1.5% over the past year.  The market interpreted the jobs report as “Goldilocks” – neither too hot nor too cold, sparking the Friday rally.  The US service sector Purchasing Managers Index (PMI) downticked to 57.4 in April from 59.2, but was still the second highest reading since September and higher than the first quarter average.  Factory orders rose +2.1% in March, as expected, making it the biggest jump since last July.  Orders for core capital goods rose +0.1% versus an earlier reported drop of -0.5%, signaling a slight uptick in business plans to invest.

Employment firm Challenger reported that the college class of 2015 is entering the best college graduate job market of the post-Great recession era.  As of March, the jobless rate for 20 to 24-year-olds with a bachelor’s degree was just 4.4%, the lowest since 2008.  In contrast, for those in that age bracket but with only a high school diploma the unemployment rate is 14.5%.

Canada’s labor force declined by 19,700 in April, more than the 5000 expected.  The unemployment rate remained unchanged at 6.8%.

In the Eurozone, the European Commission raised its GDP forecast to 1.5% in 2015.  The economies of Spain and Ireland are expected to continue to grow the fastest.  The zone-wide manufacturing sector retreated from March’s 10-month high, with the April PMI reading at 52.0, down from 52.2.  Production, employment, and new orders all gained.  As expected, Ireland and Spain were the strongest at 55.8 and 54.2, but France and Greece both declined.  The Eurozone resisted deflation in March as the Producer Price Index (PPI) ticked up +0.2%; annualized PPI rose to -2.3% from -2.8%, but is still in deflationary contraction.

In Asia, China’s manufacturing declined further in April as the HSBC-Markit PMI dropped to 48.9 from 49.6 in March.  Markit stated that “the pace of deterioration was the strongest seen in a year.”  China’s trade surplus was reported at $34.13 billion in April, missing expectations of a rise to $40.8 billion. Exports declined -6.4% and imports sank -16.2%.  Expectations of new government stimulus have been keeping the Shanghai stock market buoyant, however.

S&P 500 after Payroll Report

As noted above, one of the most important market-moving economic reports is the monthly US Non-Farm Payrolls jobs report.  One would naturally think that expectation-beating good numbers would produce higher stock markets, and expectation-missing poor numbers would produce lower stock markets…but one would be wrong!  Fundstrat Global Advisors dug into the numbers for the past 20 years, compiling the market impact following payroll reports over the following 1-30 days.  They found the S&P 500 index actually performs better – much better, actually – the worse the payrolls number is relative to consensus expectations.

Weak economic news and jobs reports is seemingly taken by the market to imply that the Federal Reserve will lower interest rates or engage in other monetary stimulus to boost a weak economy.  But a stronger number suggests that not only may interest rate hikes be on the horizon, but also fuels concerns about wage inflation and subsequent impacts on corporate profit margins.  Yet another of the many counter-intuitive market behaviors!