After a very disappointing jobs report, the market did something that may have surprised a lot of people - it rallied. And it rallied big. The Dow gained 229-points, and other than a partial fade from the Nasdaq, most of the indices held onto their morning gains and we saw new highs in several indices. Bonds closed flat after a strong open. The dollar tanked helping the I-fund, and the S-fund led with the threat of rate hikes easing.
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The action on Friday was a good illustration of why interest rates and money supply are top of the list of reasons to be bullish. Taxes are up there as well and that may be something the market will have to deal with in the coming months, but to see a jobs report miss by 3/4 of a million jobs is not something you see very often. If you heard that you may have jumped on your online brokerage account to see how much money you've lost, and to your surprise you would have seen the Dow, S&P 500, and the Transports exploding to new all-time highs.
The initial reaction to the much weaker than expected jobs report was some selling in the pre-market futures market, and a sharp decline in bond yields. However, things turned around in a hurry and stocks of course ended the day with big gains, and the yield on the 10-year completely reversed course and ended the day up, and back above its moving average, after a quick breakdown.
The dollar fell sharply after the jobs report and it is now flirting with the late February lows. In the process it filled the gap left open back in February. There are three open gaps (red) overhead that could get filled on any relief rallies, but a test of the lows may come first.
A longer term chart of the dollar above shows the from just after the new year started. One rising support line (blue dashed) was slightly penetrated on Friday, but its close enough that I'll wait a few days before considering an official breakdown. Otherwise, the early February and January lows could be eventual targets. It looks like a nasty head and shoulders pattern s forming.
I continue to show the effects of the weak dollar as we see lumber, copper, and oil prices all at or near recent highs. This is why inflation had become a major concern. The jobs report may have eased those concerns, at least for a day, but it didn't stop these commodities from rallying again on Friday.
The price of oil was up modestly but did not make a new high as it seems to be dealing with a double top that may need a bit of time to work through. It could blast through to new highs (blue arrow) or perhaps another test of the rising support could really give it a boost for its next attempted leg higher.
The S&P 500 (C-fund) rallied nicely but hit the top of that red resistance line again, and stalled. There is also a blue, more steeply rising trading channel that could be in play, but it will still have to deal with the red one before testing the top of the blue channel. So far the 20-day EMA has done a great job of holding off the dips, and that is a sign of a strong market. It has still been a long time since we've seen a 10% correction, and this chart has come a long way since that low in early March with basically only one hiccup in those two months. Can it continue?
The longer term weekly chart of the S&P 500 created a positive outside reversal weekly bar last week. An outside reversal bar means that the index traded below the prior week's low, and above the prior week's high, then closed closer to the highs of the week, and in this case above the the prior week's high. That's pretty rare and and generally quite bullish. I marked the prior positive outside reversals over the last two years with a blue arrow and what happened in the weeks that followed.
The DWCPF (S-fund) rallied nicely on Friday and that followed through on Thursday positive reversal day. This chart has certainly had its share of consolidation and basing since its highs back in February. We've seen 4 moderate to significant pullbacks with each being followed by a snap back rally. The latest pullback was -6.2% from the late April peak to Thursday's low. Can it make it 4 in a row and another attempt at a new high, or is running out of steam? It looks more bullish to me so a failure at this point could be a deal breaker and a possible sign of a peak, but it's too early to say that. Let's see what this snap back rally has in store.
The EFA (I-fund) blasted off to new highs on Friday and the dive in the dollar (UUP chart below) late last week broke down its bear flag and the I-fund broke above its bull flag. It's always nice to see technical chart patterns do what they are supposed to do.
The Volatility Index fell sharply, 9.2%, on Friday as stocks rallied. So the weak economic data basically told investors that the Fed, who may have been getting pressured to consider an interest rate hike, can go back into defending their 0% rate stance.
BND (F-fund) could do nothing but rally after that extremely disappointing jobs report as yields tanked, but as the day wore on and BND drew closer to the 200-day EMA, the rally faded in bonds, and the F-fund ended the day basically flat. As chart patterns go, the negative reversal day should put some pressure on the bond market on Monday.
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