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Market Hinges on Jobs Report

Huge breakout or a brief but nasty sell-off possible

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What the Markets Are Saying

Following the first down day of the year, traders and investors alike will no doubt be nervous news hawks. And, as noted above, the non-farm payrolls report before the opening will be in focus. The Labor Department is expected to report a gain of roughly 150,000 jobs in December, and a dip in the U.S. unemployment rate from 9.8% to 9.7%.

With so much attention, and with the market at key breakout points, a bigger-than-expected gain could result in a huge breakout. Because once our near-term targets are achieved, there is a modest dead space in the charts, which could pop the Dow Industrials up to around 12,000.

But what if the increased estimated gains are nothing but fluff? The market could sustain a brief but nasty several days of selling, which would take the Dow to its initial support at 11,500 to 11,550.

All of our internal indicators are now at the extreme overbought level, including MACD and stochastic, while momentum is declining from its December high (not good). The one indicator, however, that is most reliable in nailing near-term overbought markets is the Relative Strength Indicator (RSI). The RSI for Dow is slightly higher than at the November high, and almost as high as the April high, while the RSI for the S&P 500 is lower than the November high but higher than the April high. For the S&P 500, April’s high on the 15th led to the top on April 26, and a plunge of almost 200 points before a bottom was made on July 1.

I’m not saying that the current conditions warrant a drop like that, but the high RSI number should caution us to moderate our most speculative urges.

The sentiment indicators are also warning us to be cautious. Here is the direct quote from AAII: “Bullish sentiment extended its streak of above-average readings to 18 consecutive weeks in the latest AAII Sentiment Survey. This is the longest such streak since 2004. The percentage of individual investors expecting stock prices to rise over the next six months rose 4.3 percentage points to 55.9%. The historical average is 39%.”

In December, I proposed that the first of the year would likely see the averages achieve the near-term objectives of Dow 11,785, S&P 500 at 1,278, and Nasdaq at 2,700 to 2,710. Those goals have been met much sooner than expected. Now we must wait for the market to tell us whether it blasts off or settles down.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

If you have questions or comments for Sam Collins, please e-mail him at

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