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Jobs report triggers another sell-off

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Stocks
dropped sharply on Friday after a mixed jobs report saw investors fleeing first, and asking questions later. The 151,000 jobs added was about 40,000 less than expected, but the unemployment rate dipped under 5% to 4.9%. Hidden in the report was a tick up in wages, something the country has sorely missed, but whether that is good for the stock market is debatable.

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As always, investors want to know what the Fed is going to do with interest rates next. Sad but true. Earnings have historically moved the market but recent history tells us that the market moves based on how easily and cheaply the Fed makes money available. The tick up in wages is a possible inflationary scare and rates are more likely to move higher if inflation rises more than expected.

There's more to it than that of course, but the market has been reacting with emotion lately so FOMC days and important economic report releases, like Friday's jobs report, will produce emotional moves. It would not surprise me at all to see the market, after a possible Monday morning hangover, bounce back in the coming days. Make no mistake about it, this is a bear market environment and until that changes,
rallies generally get sold. But we don't want to miss bear market rallies when they come. They can be explosive.

The buy and holder has an advantage during a bull market, but bear markets are where the market timers can shine over those buy and holders. You may not make a lot of money, but you can avoid losses on the way down and try to make some money during the rebounds, where the buy and holders are at the mercy of the direction of the market. If you can take some of the gains from a relief rally, and miss some of the losses during the sell-offs, you will be way ahead of the game, and ahead of most professional money managers. Your small size is an advantage compared to a money manager who has to move hundreds of millions, if not billions, during trades. We can be in and out with a couple of clicks.


The SPY (S&P 500 Index / C-Fund) starts February in much the same fashion as it did January... down. Earnings season is in full gear now, although earnings haven't been the market movers lately. It's been oil, Asia, the Fed, etc. Technically, the chart is not shaping up so well. I have been saying that I expected a test of the lows and so far we have avoided that in the S&P 500, small caps, and Transports but...




... take a look at what has happened to the Nasdaq. It is near the January lows already, and the big "FANG" stocks, that led the market higher in 2015, are the ones leading on the way down. FANG being Facebook, Amazon, Netflix, and Google.




The weekly chart of the S&P 500 has come down toward the consolidated lows of the last several months. That is, it is not down to the capitulation lows we saw in January and October 2014, but it is trying to hold the lows we saw several times in 2015.





The
Dow Completion Index (small caps / S-Fund) broke down from its bear flag, as bear flags tend to do. There are so many issues here it's difficult to get bullish, but if the lows are going to be test and if they hold - big if - we could be close to a very important low. We'll have to take it day by day. But today, this chart is broken.




The
Dow Transportation Index was down on Friday but held up relatively well compared to some indices, and remained within its bear flag - which really isn't saying a whole lot. This is supposed to be the market leader and for nearly a year now it has led on the down side. Is a breakdown inevitable here, or is this the start of some relative strength from the market leader? It's too early to say.




The price of oil is of course still on the radar although last week we finally saw a little decoupling between it and the price of stocks.




The EFA (EAFE Index / I-fund) was down but held up a little better. Mostly because of the weakness in the dollar which tends to help the I-fund outperform U.S. stocks.




The dollar tanked last week scaring the stock market and it was part of the reason for the decoupling of stocks and oil since oil benefits from a drop in the value of the dollar.




The AGG (Bonds / F-fund) have been benefiting from the weakness in stocks, but also they have led the way in looking for possible recessionary clues. Why would bond yields be going down while the Fed is considering raising rates? The answer is the bond market may be sniffing out a slow down in the economy.




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 www.tsptalk.com/comments.php

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