The major stock indices rallied Friday following a surprising government report that showed 204,000 jobs were added last month. Economists had expected only 120,000 and a negative impact from the 16-day government shutdown.
The financial sector was strong, up 2.3%, with most banks participating. JPMorgan Chase (JPM) jumped 4.5%, and Bank of America (BAC) rose 3.8%. But a jump in bond yields caused a sell-off in high-dividend stocks, real estate investment trusts (REITs) and utilities.
At Friday’s close, the Dow Jones Industrial Average was up 168 points to 15,762, the S&P 500 rose 23 points to 1771, and the Nasdaq gained 62 points at 3,919. The NYSE traded 823 million shares and the Nasdaq crossed 496 million. On the Big Board, advancers were ahead of decliners by 2.7-to-1, and on the Nasdaq, advancers were ahead by 3.7-to-1.
For the week, the Dow gained 0.9%, the S&P 500 rose 0.5%, and the Nasdaq fell 0.1%.
The gap in October was filled with Thursday’s downturn. This is significant because it negates what appeared to be a breakaway gap, which should have led to a solid jump or runaway. But there is significant support at the 50-day moving average at 3,804 and the intermediate trendline at about 3,750. MACD is now on a sell signal.
The Dow industrials reversed field on Thursday following a breakout, but all of that reversal was recovered by Friday’s rally — a positive for the bulls. Support now rests at the 20-day moving average at 15,518 and then the 50-day at 15,317.
Like the Dow, the S&P 500 reversed sharply on Thursday, but much of that loss was recovered on Friday and neutralizes Thursday’s key reversal day. Support rests at 1,730, the September high, and the 50-day moving average at 1,710. MACD is in the bear zone, but the fast line is now flat and a rally could quickly reverse it to a bullish signal.
Conclusion: The wild fluctuations of late last week were dizzying. But Friday’s strong response to the jobs numbers neutralized Thursday’s key reversal day on the S&P 500 and left us with the possibility of an upside follow through this week.
With so many contrary technical signals, it is best to go with the major trend, which is still bullish. But we will need more support in terms of breaking through the recent highs on higher volume and stronger breadth. Until then, we remain buyers, but only of stocks that are clearly undervalued.
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.