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Weak jobs report triggers huge drop, then big reversal

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Stocks completed a wild week with a wild day on Friday after the "disappointing" jobs report - or was it?

Stocks opened precipitously lower on Friday morning after the jobs report came up about 60,000 jobs short of expectations. Within minutes, the Dow was down 260-points and it looked like the rebound off the lows was in jeopardy.

Fast forward 6 hours and the Dow ended the day up 200-points. An amazing turnaround that seemed to confuse a lot of traders. Are we still playing the bad news is good news game when it comes to interest rates, or will we finally start seeing economic data be taken at face value? The rally on Friday really didn't make a lot of sense unless you consider that investors who were short the market (betting against), were in a frenzy to buy to get out of their short positions. They call that a short covering rally and that is a possibility. And if that was the case we should know soon enough this week as the upside would get a lot tougher. We'll see.

I have seen a lot of strange things in the market in my day but Friday's action was right up there with some of the strangest. I have seen big market reversals, and I have seen the market move in the opposite direction from where you might expect after news, but I'm not sure I've seen a bi-directional reaction quite like that. Ironically, the last time we saw something like this was just last month at September's FOMC meeting when they did not raise interest rates, where the reaction was the opposite... initially sharply higher, then a collapse.

Often times during meaningful FOMC meetings and jobs reports, the market will move in one direction initially and then a few days later it reverse course. These days we are seeing those reversal happen within hours or minutes.

Daily TSP Funds Return

The TSP stock funds all posted healthy gains on Friday, erasing some severe early losses. Bonds closed higher but reversed hard to the downside and closed well off their highs.

The SPY (S&P 500 / C-fund) broke through some weaker resistance (red dashed) on Friday with a 1.5% gain, but there is still some tough resistance near 197. If this bear market is going to linger, 197 could be a tough area to take out. Otherwise, we may have seen the lows successfully tested. But we probably need to see a move over 202 before that would be official.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The long-term weekly chart of the S&P 500 is still in a bear flag but last week's big reversal bar could mean a test of the top of the flag is possible this week. But this is still a negative formation and when in bear market we probably shouldn't get overly optimistic yet.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The Dow Completion Index (small caps / S-Fund) broke through the top of the bear flag. The follow up this week to Friday's crazy action will let us know is it was a real breakout, or a just fake-out.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The market leader, Dow Transportation Index, is still in a bear market, in a downtrend, and creating a possible bear flag, which would be bad news, but there's a chance that this could be a higher low being created, which is the first step in getting out of a bear market. For now, there is still a lot of overhead resistance on this chart.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The EFA (EAFE Index / I-fund) filled the large open gap (blue) with Friday's rally, and it is reaching toward the bottom of the bear flag and the descending resistance line. It's a start, but nothing is settled here yet.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The German DAX is the leader in Europe and this chart is still a mess. The hope here is that the test of the lows holds and we are seeing a double bottom. But that's a bear flag and that dashed line must hold.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk


The AGG (bonds / F-fund) ran up after the jobs report to hit the overhead resistance, which was also the upside target of the inverted head and shoulders pattern. The longer-term trend is still up as the trading channel rises, but the negative reversal day may be a slight negative for the onset of trading this week.


Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk



Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

Thanks for reading. We'll see you back here tomorrow.

Tom Crowley


Posted daily at TSP Talk - Market Commentary

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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S&P500 (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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