The stronger than expected jobs report shook things up a bit on Friday, and not only did we see mixed results in the indices, but also big moves in yields, the dollar, and some commodity prices. The Dow gained 144-points, but other than a modest gain in the S&P 500, many indices were down on the day despite the strong data. Yields spiked sending bond prices lower, and the dollar rallied putting pressure on the I-fund.
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The jobs report came in slightly better than the big expectations, but the drop in the unemployment rate to 5.4% was an attention grabber. Obviously good news for the jobs market, but the Fed is also paying attention, and a drop in the unemployment rate is something they look for when considering whether to continue to feed the economy with their assistance. A 5.4% unemployment rate could get them looking toward tapering their bond buying, and potentially raise interest rates again, although they seem very reluctant to do either.
The strong economic data sent the 10-year Treasury yield up toward 1.3% and above its descending resistance line. It is still facing the 200-day EMA, which can be troubling when in a bear market, as yields have been. The breakout above the resistance also raises the possibility of a double bottom low being cemented in just below 1.15%.
The dollar gapped up after the jobs report was released and that pushed the UUP above the 200-day EMA and closer to the July high, after the recent pullback.
We know that puts pressure on the I-fund, but also commodities as we saw oil move down again after failing at the 50-day EMA. And below that you can see what happened to the price of gold on Friday.
So it was a good news, bad news economic report. Strong economic data is obviously a good thing, but the stock market might prefer that the Fed not have an excuse to reign in their easy monetary policies, which a million new jobs and a 5.4% unemployment rate could do.
That makes the Jackson Hole Economic Policy Symposium, which is being held on August 26 - 28, that much more important, and could be the next catalyst for the market as earnings season starts to wind down from here. We do get the PPI and CPI reports this week which could be market movers given how sensitive bond yields are to inflationary type of data.
The S&P 500 (C-fund) made another new high on Friday after the mostly sideways action over the last two weeks. It is inching closer to that rising resistance line that has been holding since mid-April, but since the resistance continues to rise, it isn't much of a roadblock. The new high allows us to draw a new rising support line off the July low and that also creates a rising wedge pattern, which can create a bearish technical scenario.
The DWCPF (S-fund) broke out above that resistance line again, but closed below it yet again. At this point, this chart needs to make a new high, or it will cement in a lower high, which could eventually mean a test of the prior lows. So, after the strong economic data, which should be a boost to small caps, this needs to make it's move, or the bears may come in and try to make a move.
The EFA (EAFE Index / I-fund) took a hit on Friday and the 0.58% loss in the I-fund basically reflects the 0.56% gain in the dollar. We knew that angle of incline off the July low was not sustainable, and now that it has broke, the thing to watch for here is if this becomes a lower high - which brings a similar issue to what we talked about with the S-fund above with a possible change in the overall trend. It's too early to say that, but it's something to watch for.
Japan's Nikkei Index has been in a steady decline since February and is trying to stabilize at the 200-day EMA. And of course Japan makes up about 25% of the I-fund, and with the I-fund recently flirting with its all time highs, it has done so without the help of its largest holding. I suppose the good news is if the Nikkei can hold here at the 200-day EMA and attempt to bounce back, the I-fund could be in a good position to make those new highs. However, this chart doesn't look great still trading under its 50-day average, so new highs are no guarantee, and possibly more concerning than encouraging.
The Dow Transportation Index was up moderately but it remains below that key 100-day EMA which had held as support all year until the breakdown in July. 14,600 looks like a key resistance area.
The BND (bonds / F-fund) was down sharply as yields moved higher after the strong jobs report. A large gap was opened and it fell below support and back into that rising trading channel. So as the 10-year yield put in a possible double bottom, we could be seeing a double top here.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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[TD]
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[TD="align: center"]
[/TR]
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The jobs report came in slightly better than the big expectations, but the drop in the unemployment rate to 5.4% was an attention grabber. Obviously good news for the jobs market, but the Fed is also paying attention, and a drop in the unemployment rate is something they look for when considering whether to continue to feed the economy with their assistance. A 5.4% unemployment rate could get them looking toward tapering their bond buying, and potentially raise interest rates again, although they seem very reluctant to do either.
The strong economic data sent the 10-year Treasury yield up toward 1.3% and above its descending resistance line. It is still facing the 200-day EMA, which can be troubling when in a bear market, as yields have been. The breakout above the resistance also raises the possibility of a double bottom low being cemented in just below 1.15%.
The dollar gapped up after the jobs report was released and that pushed the UUP above the 200-day EMA and closer to the July high, after the recent pullback.
We know that puts pressure on the I-fund, but also commodities as we saw oil move down again after failing at the 50-day EMA. And below that you can see what happened to the price of gold on Friday.
So it was a good news, bad news economic report. Strong economic data is obviously a good thing, but the stock market might prefer that the Fed not have an excuse to reign in their easy monetary policies, which a million new jobs and a 5.4% unemployment rate could do.
That makes the Jackson Hole Economic Policy Symposium, which is being held on August 26 - 28, that much more important, and could be the next catalyst for the market as earnings season starts to wind down from here. We do get the PPI and CPI reports this week which could be market movers given how sensitive bond yields are to inflationary type of data.
The S&P 500 (C-fund) made another new high on Friday after the mostly sideways action over the last two weeks. It is inching closer to that rising resistance line that has been holding since mid-April, but since the resistance continues to rise, it isn't much of a roadblock. The new high allows us to draw a new rising support line off the July low and that also creates a rising wedge pattern, which can create a bearish technical scenario.
The DWCPF (S-fund) broke out above that resistance line again, but closed below it yet again. At this point, this chart needs to make a new high, or it will cement in a lower high, which could eventually mean a test of the prior lows. So, after the strong economic data, which should be a boost to small caps, this needs to make it's move, or the bears may come in and try to make a move.
The EFA (EAFE Index / I-fund) took a hit on Friday and the 0.58% loss in the I-fund basically reflects the 0.56% gain in the dollar. We knew that angle of incline off the July low was not sustainable, and now that it has broke, the thing to watch for here is if this becomes a lower high - which brings a similar issue to what we talked about with the S-fund above with a possible change in the overall trend. It's too early to say that, but it's something to watch for.
Japan's Nikkei Index has been in a steady decline since February and is trying to stabilize at the 200-day EMA. And of course Japan makes up about 25% of the I-fund, and with the I-fund recently flirting with its all time highs, it has done so without the help of its largest holding. I suppose the good news is if the Nikkei can hold here at the 200-day EMA and attempt to bounce back, the I-fund could be in a good position to make those new highs. However, this chart doesn't look great still trading under its 50-day average, so new highs are no guarantee, and possibly more concerning than encouraging.
The Dow Transportation Index was up moderately but it remains below that key 100-day EMA which had held as support all year until the breakdown in July. 14,600 looks like a key resistance area.
The BND (bonds / F-fund) was down sharply as yields moved higher after the strong jobs report. A large gap was opened and it fell below support and back into that rising trading channel. So as the 10-year yield put in a possible double bottom, we could be seeing a double top here.
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
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
To get weekly or daily notifications when we post new commentary, sign up HERE.
Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
