Nervous Trading on Poor Employment Picture; Health Care Causing Problem

September's Non-farm payroll report was far worse than anyone expected, showing a loss of 263,000 jobs for the month when the market was expecting job losses somewhere around 180,000. Not only was the number far worse than expectations, it was worse than the previous month, a real break in the momentum of the recovery.

It has become increasingly clear that employers are not about to do any serious re-hiring or new hiring until the Congress gets off the entire health care reform kick. Legislation has been sloshing around the halls of Congress for months and have stalled, but, more importantly, business owners are holding back on hiring because of all the uncertainty, fearing increased costs or taxes on employees and the underlying businesses.

The longer Congress diddles with the health care issue, the longer the joblessness will continue in the USA. Also clear is that the Obama stimulus act of the Spring has not done nearly enough to boost recovery efforts. While the stimulus may have helped stabilize the situation, real job creation remains a distant mirage.

Also weighing on investors are the burgeoning foreclosures and number of Americans falling further into debt. Credit card and loan delinquencies are quickly reaching panic levels and unless those are somehow stemmed, the rally in stocks is going to be not only cut short, but trampled into dust. The level of fear in the marketplace has risen palpably over the past two weeks and especially over the past two days.

Despite the headline numbers from the major indices which showed marginal declines, the day on the market was actually much worse. First, a new short-term low was put in with stocks selling off right at the open. After a day-long rally back to positive territory, selling resumed just before the close, suggesting that Friday's trade was an unsafe bet heading closer to earnings season, though that will be preceded by Alcoa's earnings announcement on Wednesday and retail sales figures from the nation's largest vendors on Thursday of next week.

The technical damage done to the major indices over the past two days was significant, and, even though today's losses were modest compared to Thursday's massive selling effort, more damage was done today by the fact that the market did not properly respond to the horrible employment data. Because stocks set in a new low (9430 on the Dow, a 79-point loss) and closed near the mid-point of the day's trade, it created a situation similar to what occurred on Wednesday, when stocks put in a new low and finished well ahead of it. That telegraphed the next day's action, which, as we now know, was rampant selling.

Dow 9,487.67, -21.61 (0.23%)
NASDAQ 2,048.11, -9.37 (0.46%)
S&P 500 1,025.21, -4.64 (0.45%)
NYSE Composite 6,674.57, -43.48 (0.65%)

Simple indicators were a far better gauge of the damage than the closing numbers. Declining issues were ahead of advancers, 4253-2145 (2-1), and new highs tallied just 144, significantly lower than recent figures, while new lows ramped up to 59. Volume was lower than on Thursday, a real indication that the smart money was all-out on Thursday instead of waiting around and holding in front of the payroll data on Friday. Smart money is always out of the way first, and this seems to be the case currently.

NYSE Volume 6,468,782,500
NASDAQ Volume 2,385,079,250

Commodities were mixed, with oil trading down 87 cents, to $69.95; gold up $3.60, to $1,004.30; and silver down 21 cents, to $16.23.

As for the Dow components, reflected the bifurcated nature of the market, 19 were down and 11 closed higher, with IBM, Coca-Cola (KO), Merck (MRK) and JP Morgan Chase (JPM) providing most of the upside boost throughout the day. Without their participation, another triple-digit loss would almost certainly have ensued. Watch for those four to lead lower in coming days as their gains were largely unwarranted.

Today also marked the 7th day out of the past 8 that stocks have traded lower. The trend is clearly favoring the bulls right now and that sentiment should remain in place until some catalyst us found by investors to shake off the current funk. What that may be is difficult to fathom, the depth of distress caused by the reversal of the employment trend casting a heavy pall on the entire economic picture as the 4th quarter begins.

One technical note: this chart shows just how dangerous a position the Dow is at currently. The index touched its 50-day moving average today - something it hasn't done since the June-July timeframe. While it bounced right off it today - nobody in the financial media bothered to express this salient point - the prior period resulted in a very congested trading range to a small downside. The Dow could be in for a two-week consolidation period which may be sloppy and misconstrued as a return of the bear, though it's likely not. Look for a drop to the 9100-9250 range before earnings season begins in earnest.