Another big rally for stocks on Friday, but now things get interesting. The Dow shot up 166-points on the day despite a weaker than expected jobs report. All of the major indices closed with solid gains of over 1%, while bonds were also higher. The I-fund led the way with the help of a decline in the dollar.
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The jobs report came in at +113,000 jobs, well below the estimates of between 175,000, and 185,000, but the unemployment rate did drop to 6.6%. The futures were up prior to the report, quickly sank after the announcement, but almost as quickly regained the losses and by the open of Friday, stocks were off to the races.
After three days of flirting with the 174 area, the SPY (S&P 500) bottomed on Wednesday of last week, and rallied over 3% since. But there are a few roadblock ahead, and the question is: is this the start of another 2013-like "V" bottom, or will 2014 turn out to be different? We know that January was different, and now the next test is upon us.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The annual chart would lead us to believe that it is business as usual as the support from the bottom of the long-term trading channel was tested and held... again. The 20-day EMA has pulled back to the 50-day EMA, which is normally a sign of being oversold in the short-term, and we have had a bounce since. In 2013 it also meant a bottom for the market, but that is not historically typical. It is more of a warnings sign.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
And what would that warning be? This dreaded chart that I have thrown at you for almost 2-months now. Not that we expect a perfect comparison, but if we start seeing 16,000 or higher on the Dow again, we have to be concerned that the 3-peaks and a domed house pattern will resume to the downside - sharply.
Chart source: www.mcoscillator.com, analysis by TSP Talk
The small caps had a nice day on Friday, but they are lagging the larger stock indices and they will either start to catch up, or this is warning sign that one of our leaders is not pulling its weight.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds are still trying to find support at the 200-day EMA after breaking down from the short-term rising support line. Remaining above the 200-day EMA is the key for bonds, but it may turn out to be the bane of stocks. Stock market bulls would probably prefer to see these charts break down again.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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