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Jobs report keeps positive reversal going, but now charts may get in the way

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After Thursday's big positive reversal, stocks were set up to follow-through on Friday, and the jobs report did not disappoint allowing the chart technicals to play out as you might expect a reversal to do. But as you'll see below, there are some possible roadblocks in the short-term that could make or break this relief rally. The Dow jumped 373-ponts on Friday and we saw similar percentage gains in the S&P 500 and Nasdaq. Small caps lagged a bit as did the I-fund.

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The jobs report was not too strong, but good enough to keep the bounce off the 200-day EMA going for the S&P 500. Since we were comparing that rally to one off the 200-day EMA back in August, we have to be on the lookout for a possible failure at the 50-day EMA, which we saw repeatedly back then. October is a volatile month historically, and a repeat of August would make some sense, but October is also normally a good month for stocks on average, where August is not, so perhaps the bulls will find a way to avoid that kind of back and forth action.

Beginning on the 10th, the trade negotiations with China will resume and we know headlines from those meetings will be market movers, and with the late October Fed meeting scheduled and the heavier releases of earnings reports a week or so away, this will be the main focus this week.

The S&P 500 (C-fund) is in a similar situation to where it was back in early August after a sharp pullback to the 200-day EMA and a relief rally up to the 50-day EMA. The questions is whether the outcome will be different this time. Stalling at the 50-day EMA on the first test is normal, but can it breakout or will the bears put the pressure back on? Normally a rally up to earnings season is more typical, with a "sell the news" reaction after the reports come in, so the bulls have that going for them for a little while longer. They also have the prospect of some kind of deal being reached in the trade talks with China later in the week, but that may be wishful thinking because I don't hear anything that would indicate that a deal is getting close.

The weekly charts looks quite promising with that long positive kangaroo tail forming last week. Plus the blue rising trading channel held at the lows last week.

The S-fund is lagging as it is still well below its 200-day EMA, but that may be a good place for this relief rally to try to test so there may be a little more room on the upside regardless of whether the 200-day EMA ultimately holds or not.

The EFA (I-fund) bounced back into the descending trading channel as it filled a little more than half of that open gap near 64.50. It did close back above the 200-day EMA after falling well below it, and filling the other big gap that was down near 63.0.

The price of oil hasn't been flying off the lows like stocks, but it did hold at the prior lows. It is still in a sharp downtrend and below resistance coming off the Saudi Arabia oil field attack highs. This isn't the best sign for the economy, but low gas prices do help consumer spending on other things.

The price of copper is also staying pinned near recent 2019 lows indicating some sluggish economic activity. The good news about weak economic data is that it will certainly keep the Fed on a trend of cutting interest rates, which stocks do like.

The Volatility Index pulled back to the top of the large bullish looking flag, or descending trading channel, whatever you'd like to call it, and held as we speculated it might on Friday. The 200-day EMA is about 1-point below Friday's close and there could be some decent support in that area.

AGG (bonds) rallied on the day as yields slipped again. While the decent jobs report did come in a little light, the chart had already moved above that blue trading channel so it had some room to run, but here it is again testing that double top.

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

Tom Crowley

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