Stocks were flying high after the October jobs report was announced early on Friday morning, but once again the gains were eaten up by the close, and the S&P 500 was down for the ninth-straight day, its longest stretch of declines since 1980. The Dow lost 42-points so the losses weren't bad but it's the negative action that has technicians concerned. Small caps actually held on to some solid gains (+0.34%), but they were up over 1% earlier in the day.
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The October jobs report came out a little weaker than expected as 161,000 jobs were added, about 15,000 off estimates. The unemployment was 4.9% and that's a number that the Fed could use as a reason to raise rates next month, so they remain in a tough position.
We have some signs of weakening economic conditions and raising rates would not be the answer to that. They tried it under similar conditions late last year and stocks sold off dramatically in the following weeks after the rate hike. They had planned to make it a series of small hikes throughout this year but the economy continued to struggle, stocks fell, then there was Brexit, and here we are 11 months later and they have not raised again. Will they have the will to raise it under similar conditions in their December meeting?
We know the election is causing a lot of consternation and emotions are flying high. But the trouble goes beyond that and investors don't seem to have a lot of faith in the Fed anymore.
The latest on the election is that the FBI has again cleared Clinton of any wrong-doing in the email scandal and the futures just opened on Sunday evening with the Dow futures up over 200-points, with 1% or higher gains across the other indices. Will it hold into the open, or into the close on Monday, the day before the election? The polls are tight but it looks likes investors believe this news will help Clinton to victory.
I am seeing all kinds of predictions about the market falling should Trump win. Citi Bank predicts a quick 5% drop in stocks if Trump wins while Dave Stockman, "the father of Reaganomics", predicts a 25% drop no matter who wins. When I hear things like that I get very skeptical because investors had weeks to sell into the rumor of a Trump win, and they have, and we usually end up getting a "buy the news" reaction after the rumor is sold.
However, a Trump win would be the surprise, and even worse may be if no winner is projected yet when the market opens up on Wednesday morning. Remember the 2000 election? We didn't know the winner until December 12th. The market did not like that.
So, we have a case here where you have a risk / reward decision to make. Stocks could tank after the election as some suggest, or it could bounce back quickly if there's "buy the news" reaction. Monday at 12 noon ET is your last chance to decide how to play it.
The S&P 500 (C-Fund) has fallen for 9 straight days and of course that means we saw a breakdown in the chart as we made another lower low after a series of lower highs. Technical analysis actually worked out fairly well. You can see how close it is now to the bottom of the descending channel, and while T/A has been working, nothing guarantees that support will hold, particularly if the election throws us a curve.
The weekly bar chart shows a breakdown from the 50-week EMA and below some other key support lines. The one still holding is being tested now, and it is descending.
The DWCPF (S-fund) has been hit the hardest lately, although on Friday it was one of the few indices to close with some gains. Technically this chart needs some serious help, and it may take a move above 1045 to get to a safe zone.
The Dow Transportation Index has been the bright spot lately, which is normally a pretty good sign. It closed well off its highs on Friday like most indices, but it did hold onto enough gains to allow it to close above its current descending resistance line for the first time. 8050 looks like the line in the sand right now.
The EFA (I-fund) lost early 1% on Friday and is falling in sympathy with the U.S. markets as the overseas markets await the fallout of our elections. Of course the Fed and the economy are in the equation as well.
The AGG (Bonds / F-fund) rallied on Friday but failed to move back above the 20-day EMA and the descending resistance line. That's something we'd expect in a downtrend while bonds come off what may be a long-term top.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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