Stocks stumbled in front of this morning's job report as the indices feel the gravitational pull from the two open gaps created earlier this week. The Dow lost 347-points and closed near the lows of the day. Bond yields and the dollar are back on the move upward and this is adding pressure to the stock market. But between the jobs report and next week's new CPI report, we'll have catalysts that could make or break the recent relief rally.
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Once again the jobs report estimates are looking for a gain of about 250,000 jobs, and an unemployment rate of 3.7%. I think the best case for stocks might be a number closer to 200K to 220K.
The internal numbers were pretty bad yesterday with nearly 3 to 1 declining volume over advancing on the NYSE.
The rally in the 10-year Treasury Yield continued and it is pushing up toward 4% again. The dollar also resumed its rebound off the recent pullback and of course anything priced in dollars tends to feel the pressure.
This chart of the S&P 500 shows some interesting developments. It's been in a pretty steady downtrend since the August high. It had one fake out breakout in September, and now we see a small bull flag developing just below the resistance line. It looks like there is a case for a move in either direction, but the larger trend is down so that may be more meaningful. However, a favorable jobs report could be a catalyst for a breakout.
Seasonality is not a primary indicator but the chart data looks very convincing for the next few weeks. Next week has a lot of green in its history looking at the 30 year averages. That's followed by another weaker periods between October 22 and 27. Then the final days in October tend to be very strong. This is a bear market and the most of the 30 year accounted for below were not bear markets, so...
Chart provided courtesy of www.sentimentrader.com
From tsp.gov: Holiday Closing
Some financial markets will be closed on Monday, October 10 in observance of the Columbus Day holiday. The Thrift Savings Plan will also be closed. Transactions that would have been processed Monday night (October 10) will be processed Tuesday night (October 11), at Tuesday's closing share prices.
The stock market is not closed on Monday so consider that before making any transactions today.
The S&P 500 (C-fund) is in a descending trading channel and testing the upper end of the resistance line. There are open gaps below but a small bull flag is forming. Something is going to have to give and with the jobs report and CPI coming out within days of each other, we should have the catalyst for one side or the other to take control. Two or three closes above 3800 would give the bulls a big advantage. A decline from the top of the channel would likely mean 3700, or even 3600 is coming into play again.
The DWCPF (S-fund / small caps) chart looks similar but the head and shoulders patterns are forming more distinctively here. These are not good set ups so it needs help quickly.
The BND (bonds / F-fund) is still in the process of either creating a "V" bottom, or a bear flag. Rising bond yields seem to indicate that it is a bear flag. Again, the jobs report could change everything today.
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Thanks so much for reading. Have a great weekend!
Tom Crowley
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