The stock market correction of 2010 and big picture

Here are the economic news of the last week or so:

No net jobs since November 1998!..(wow, talk about a lost decade)

There was a huge gain of 541,000 jobs last month, the best in nearly five years, according to the household survey.

Within the payrolls report, services-related jobs rose by 40,000, fueled by retailers. Manufacturing employment rose by 11,000, the first gain in three years. But construction firms shed 75,000 workers amid heavy storms.

The U-6 unemployment rate that includes discouraged workers and part-time workers who can't find full-time jobs stood at 16.5% in January, though that was down from 17.3% in December. That looks like it's an encouraging number since it was at a record high of 17.5% in November.

Let's consider the number NOT in the Labor Force. The 2-month Sep/Oct 2009 combined figure of 1.838 million, in newly unemployed, or no longer 'in' the Labor Force is the second LARGEST 2-month total EVER posted, barely trailing the Dec-08/Jan-09 total of 1.955 million of newly unemployed. Not so rosy right as the holidays hit, right?

Overshadowing the US economic picture is really the global concern of countries defaulting on their debt. I think we in the US have just for too long had this "superpower mentality" (what is better described as myopia) where most are just clueless about what is going on outside the US. Most. The stock market players are paying attention as evidenced by this last month's correction.

So what is going on exactly in the stock market these days? If you haven't noticed we've had at a minimum, a correction from this massive uptrend that began after reaching the lows in March of 2009. It's a very long rally to some (including me) given all the excesses the world has yet to digest from the Great Financial Crisis of 2008-2009 (the warning signs were there from the summer of 2007).

Today we had some sort of relief rally that actually had some conviction not like 2 trading days ago on Fri, 2/5/10. Today, the Dow rallied 1.5%, closing back above the psychological 10,000 level. All indices moved up in higher volume suggesting liquidity was flowing back in the market. This is all because the European Union is putting together a bailout plan for Greece. The word "bailout" -- most thought we were done with that word right? We are done in the US....for now at least.

The EU is only doing this because they HAVE TO. If not, the "contagion" that would have developed would be catastrophic and have a domino effect. Sound familiar? Yes, that's what happened during our own crises when what most thought was isolated as a subprime disease spilled over not to the whole housing market but to financial markets around the world.

We'll have to see if this calms the markets as everyone hopes. In the short term it may but over the long term if Greece doesn't take some tough steps to cut spending and reduce deficits, they'll be looking at the same situation all over again in a few years. And the US is not far behind.

Looks like liquidity as well as the hit a support level but whether it races back to its highs that have driven this uptrend for so long remains to be seen. The next few days and weeks will be telling. The supports now are at 10,000 for the Dow, 2100 for the Nasdaq Composite, and 1050 for the S&P 500.

Personally, I think the markets were looking for a reason to finally take profits after such an unsustainable run-up. I see some bounces coming but ultimately they will run into resistance. The start of the downtrend since mid-Jan have seen down moves that have been too fast and furious to just label them a normal correction or profit-taking. We'll see...