Last Sunday we wrote that in a gap-and-go we might not see the lower half of the map at all. That’s what happened: the week gapped Monday, never came within seventy points of the nearest buy level, and settled Friday at 7,779.75, up 3.5%, with the S&P at a record close and its best week since April.
Two quick receipts from the subscriber chat been testing: the unwind-up scenario posted July 23 and the IWM trade on the clean break, posted August 3, both played out.
Now the number everyone traded and almost everyone misread.
July payrolls printed minus 23,000 jobs against roughly plus 80,000 expected. The market’s reading was simple: weak jobs, no September hike, buy. The odds of a September increase fell to about 44% by Friday, from 67% a week earlier.
Now the problem with that trade: the Fed will likely read the same report the other way. The number they care about is the unemployment rate, and it fell, from 4.2% to 4.1%. Losing 23,000 jobs while unemployment drops sounds impossible until you remember the pool of workers is shrinking, with boomers retiring and immigration down. When there are fewer workers to hire, even zero job growth keeps the labor market tight. And a tightening labor market is an argument for a hike. The only soft spot in that case: wages barely moved, up 0.1% on the month.
So stocks rallied to a record on a report the Fed may treat as a reason to hike. Wednesday’s inflation number settles the argument. If it comes in cool, Friday’s buyers were right. If it comes in hot, they bought a misread.
One more thing worth knowing before the paywall, because it’s the strangest fact of a record week: the crowd that talks and the crowd that’s positioned are pointing in opposite directions. The AAII survey, the weekly poll of individual investors that’s run since 1987, has bears at 38%, above its long-run average near 31, with the index at an all-time high, and the message boards spent the week barely climbing back to neutral. The options market did the opposite and chased. Talk bearish, positioned long. Rallies like this one end two ways: the doubters finally buy in, or the story breaks. Neither has happened yet.
Everything below is for paying subscribers: the score, the map, the orders, and the names we’re buying at their own levels.
