Unemployment Numbers Testing The Market

So far, August is developing into a dull, churning wear ‘em out correction, rather than a modest 3%-5% decline. Yesterday, the popular averages dropped a bit and the A/D was 3/2 negative on issues. It just looked like a tired market rather than one with aggressive sellers. In fact, so many missed the big rally since March 9 that there are few who now want out.

Talking about missing, we have great respect for Abby Joseph Cohen, but just yesterday she was on CNBC stating "a new bull market has started." It is great having someone of her caliber on-board, but it underlines one of our very short term concerns – when the bull gets on T.V. it is not new news. She also stated that the equity market recovery will "look like a series of upward steps and not a V-shape."

Stocks were down for the second day in a row led by health-care companies due to a J.P. Morgan Chase downgrade. While both Investors Intelligence and the AAII have shown a big jump in bulls and drop in bears, there are still many doubters.

Yesterday, Tudor Investment Corp, the $10.8 billion hedge fund firm, told clients that the gain in U.S. stocks in the past 100 days is a "bear market rally." We respect the action of the market, a recovering economy and a 50% rally in 5 months is too much to assume such a bearish opinion. If market action changes its bullish personality, so will we.

Health care reform remains a cloud of uncertainty over the market. However, as the President’s approval continues to drop, the odds on a more moderate, less expensive health reform bill increases.

Most believe there is room for improvement, as is always the case, but not drastic surgery. So what to do? If investors are about 80/20 invested as we have advised, we would continue to hold back the cash buying power but be prepared to use more churning/consolidating as a buying opportunity.

The employment news will test the market, be it better or worse than projections of 325,000 jobs lost and 9.6% unemployment rate. Today – let’s see how the employment figures are handled.

By Chief Market Strategist Al Goldman and Senior Equity Market Strategist Scott Marcouiller from Wells Fargo.