As we await the employment-data release, I think the biggest market surprise will be flat action. After all, the bulls expect a great number, while the bears anticipate a disappointment -- and both camps foresee the market following suit. Of course, there are two more groups to include: those who want a good number so they can sell the news, and bulls who will want to buy the dip.
But ask yourself this: If the jobs number is disappointing, will the bulls still want to buy the dip? If you are looking for a 3%-to-5% correction, you are essentially calling for a move that gives back up to all of January's gains -- and, if that happened, would it constitute bullish action?
In the meantime, the oddest part of Thursday's statistics showed up on the Nasdaq, which saw a sharply rising number of stocks making new lows. While that number only comes to 27, it's the highest new-lows reading of 2013 -- coming on a day that the Nasdaq (and, by extension, the Russell 2000) -- were mostly in the green. So it certainly is curious.
A reader asked if I had changed my view on the Nasdaq, since I haven't complained about it much lately. Well, what is there to change? If we set aside the gap higher on the first trading day of the year, the index has gained 1% in the month. That's not bad -- but, relatively speaking, it's not enough to change my view that this is the weakest link in the market chain.
We know the head-and-shoulders top is still there on the longer-term Nasdaq chart but, shorter-term, we see an uptrend line at 3125 to 3130 -- rather close to the current quote. As long as it can stay above that line, this mild uptrend will remain intact. Any break of it -- or, at the very least, a test of 3075 -- and the prospect of filling that early-January gap would show up on everyone's screens.
Given the increase in new lows, the fact that the Nasdaq is still overbought and the state of the Nasdaq McClellan Summation Index, I think the index should break that line.
Regarding that McClellan Summation Index, it has not yet rolled over, but it has stalled out. At present, the Nasdaq would need to yield a net differential of +400 billion shares of volume -- up volume minus down volume -- in order for the indicator to return to the upside. That isn't much when we consider that the Nasdaq is at its highs; you would think it would have more of a cushion, and that it would be able to fall 1% or 2% without causing the indicator to roll over. To me this is just another sign of lost upside momentum in the last week or two.
Finally, with the defense stocks taking it on the chin Thursday, we saw sequestration chatter rise, just as I noted we would last week. It is far from any sort of crescendo, but I expect more of it in the coming weeks. We might even get a countdown clock on CNBC!
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