As the market trends higher, each job report becomes that much more important. People want to see if the improvement in all of these corporate profits has translated into more job creation. Ok, it's not that simple. We know that many companies have achieved higher profit by way of cost cutting. Cost cutting, unfortunately, also means the cutting of jobs. According to what we have seen and read, not many companies have stated that they are hiring like mad, or at all, in recent quarter. Therefore, in order to achieve higher profit, companies simply executed better. In conclusion, we firmly believe that most companies that have reported good number are the direct result of great execution.
What does this mean for the employment then? Well, we can very well remain at a high unemployment rate while the economy picks up the pace. This is not contradicting as companies have demonstrated that they can execute well with lower head counts. On the other hand, when the economy reaches a point where rapid growth and expansion are warranted, only then the unemployment rate will decline dramatically. At this moment, since the economy is recovering at an early stage still, don't expect much improvement in the employment area.
So, we feel tomorrow's job report will NOT give us much of a surprise. In case the job report shows an improvement in unemployment rate, it's likely this market will take the opportunity to do some further profit taking. SPX 1007 is stiff R for the mkt this week. SPX 993 is support, a break and we should see 982 sooner than later. Ok, so profit taking is pretty much what we have in mind these days. A good surprise and a bump closer to SPX1014 may be bring out even more sellers. We've just wanted to avoid a spike gap open this week, so far so good. Bottom line, no matter what happens, it will be interesting to see people's reaction to tomorrow's job report.