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The jobs report slows down the rally

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Stocks wobbled early on Friday after a weaker than expected jobs report was released before the opening bell. The dip buyers jumped in quickly, but some late selling into the close took the indices off their highs. The Dow and S&P 500 closed a solid week for stocks with modest gains, while the Nasdaq, small caps, and the Transports closed in the red.

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The weak closes created some possible negative reversals on the charts, particularly in the small caps chart, but selling on a Friday has been common recently with a pattern of profit taking into the weekend with potential key headlines and Presidential tweets. The number of jobs created in August came in about 20,000 jobs lighter than expected on Friday, while the unemployment rate remains at 3.7%. Bond yields moved slightly lower on the news and after the 2 / 10 year Treasury yield curve had recently "uninverted", and Friday's action stalled that new trend. The curve is still above 0.00 after Friday's action, and we'll see early this week how concerned the bond market is about that soft jobs report and the strength of the economy, after Friday's initial reaction.

The recent rally in stocks created some open gaps as you'll see in the chart section below, so there's the possibility of some backing and filling coming, but the action has been good so I'd give the bulls the nod to be buying again, especially if we see dips back to the bottom of those open gaps.

There is one caveat that I am a little concerned about and that is, because volume was light most of last week, this coming week may be considered to be more of a "post-holiday" week than last week, and if that's the case, the positive holiday action over the last 10 days or so could get reversed. But again, as you'll see in the charts, it's typical to get some consolidating for a few days after a big rally like we just had.

The S&P 500 (C-fund) took a bit of a breather on Friday after the jobs report. That spinning top candlestick formation is considered one of indecision from investors, and could start a few days of churning, not unlike the action I put in the red boxes below after similar action. I mentioned that Thursday candlestick formation (red arrows) on Friday which preceded a little more upside followed by some consolidating, so we're looking for possible repeating patterns here.

The S-fund created a negative reversal formation which usually means some weakness the following day at some point. That doesn't mean a reversal of the trend, but the bears could use any weakness to bolster their confidence. The key here is the 50-day EMA and the top of the old flag formation, which both may try to hold as support now.

The Dow Transportation Index had a weak day on Friday and while it was probably due for a rest after 6 days of trading which pushed it back above the 50 and 200-day EMA's, it gave up the 200-day EMA on Friday again, and that isn't the best sign. The bulls will want to see that bounce back quickly and recapture it.

The EFA (I-fund) held onto some solid gains with the U.S. markets selling coming late in the day on Friday. It could see some negative catch-up today but breaking above that double dose of resistance near 64.50 could give it some support.

The High Yield Corporate Bond Fund made new highs on Friday, and that's always a plus. The credit market appears to be strong and interest rates are moving lower, and that's a good formula for businesses and the stock market.

The Volatility Index remains in the large bull flag looking formation, but it did close below the 200-day EMA on Friday after falling 7.6%. That's quite a daily decline for a day where stocks were mixed and flat, and it's now at it's lowest level since July.

AGG (bonds) was up after the jobs report sent yields lower again. It is catching a bounce off the 20-day EMA but it is now below that red rising channel so we'll see if the top of that channel acts as resistance again.

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

Tom Crowley

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SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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AGG (F Fund) (delayed)

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