It was a slow day on Tuesday, with negative overtones as the three major indices, the Dow, S&P 500, and Nasdaq, all closed with losses. On the positive side, stocks closed strongly, well off the lows, and the small caps were flat while the Transportation Index actually picked up a big gain improving that market leader's chart nicely.
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I won't show a lot of the charts today because of the situation we are in this week. This is a pre-holiday week where we might see some reversals from the larger trend, and that trend could resume after the holiday so technical analysis becomes a little tougher. Volume will also be light which means it will either be very quiet out there, or any news event could really push the indices because of fewer traders.
Add to that the jobs report which will be about as important as we've had in a while as it may be the trigger that impacts the rate hike decision later in September. The August Jobs Report comes out on Friday morning and the consensus estimates are looking for a gain of about 175,000 to 190,000 jobs and an unemployment rate of 4.8%. The August Jobs Report Contest is now open in the forum. Click here for more info.
Any report near over 200,000 jobs would make it very tough for a Fed to find an excuse not to raise rates. I don't believe they really want to do it before the election, but +200,000, a participation rate that pushes the unemployment rate down or keeps it flat, and a positive indication of wage growth could cement their decision to raise. The only ace in the hole they might have to not raise if all of those were to line up would be to use the weak International economy excuse. They may also use the "earnings recession" card.
I'm not sure why the 1.1% GDP isn't a red flag for our economy, but they're not talking about that. I just know they do not want to do anything to tank the stock market a couple of months before a Presidential election. But perhaps a rate hike will signal an "all's clear" sign for the economy and stocks will rally? I don't know. I do know the bank and financial stocks will probably do well, but I'm not sure tech and small caps will applaud a hike.
If you're planning any quick moves to sidestep the jobs report, you may want to use an August IFT today because on Thursday you're into the September IFT's and you'll have to go into the FOMC meeting light on IFT's, and we know there will be some volatility then.
The SPY (S&P 500 / C-Fund) was down slightly on Tuesday, giving back some of Monday's gains, but for the most part the stock market is biding its time waiting for the jobs report, or any data that could sway the Fed's decision. The rising trading channel / flag formation is still intact.
The DWCPF (S-Fund) was flat and despite the occasional spike down here and there, it continues to climb within the rising trading channel.
The Dow Transportation Index is one of the more compelling charts for me. We follow it because it is a good indicator of economic conditions and tends to lead the broader market in direction. Yesterday's 0.63% rally shows a potential bounce off of the neckline of the small inverted head and shoulders pattern that we have been watching (blue), which is within a much larger inverted head and shoulders pattern (red). Should these play out the way inverted H&S patterns tend to do, the upside potential is very good.
The High Yield Corporate Bond is another sign that the stock market could still be OK. Yes, the jobs report may shake things up since a report that is "too strong" could spook stocks, but any volatility could be short-lived if this chart and the Transports are trying to tell us something.
It's an interesting time for the market, but isn't it always? This one just happens to be one of those like we saw in June before the Brexit vote. You know the market is going to move, but in which direction, up or down, and how fast will it snap-bounce back, if it will?
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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