Despite a higher-than-expected unemployment rate, stocks managed back-to-back gains, with the Dow Jones Industrial Average (DJI) up almost 100 points on Friday.
The unemployment rate came in at 9.7% compared to the 9.5% analysts had forecast. But smaller-than-expected job losses seemed to buoy investors’ confidence, and buying in technology and industrial stocks led to the broad advance.
During the weekend, some commentators noted the lagging nature of the unemployment rate and pointed to other global economic reports that tend to show that the worldwide recession has ended. But others also observed that the U.S. stock markets have had an unusually boisterous rally since the lows of March, and are thus overbought and due for a pullback.
There was little, other than the unemployment report, to influence stocks on Friday, and the volume ahead of Labor Day weekend was very low.
At the close, the Dow rose 97 points, closing at 9,441, the S&P 500 (SPX) gained 13 points to 1,016, and the Nasdaq (NASD) gained 36 points to 2,018.
The NYSE traded just over 1 billion shares with advancers ahead of decliners by almost 5-to-1. On the Nasdaq, advancers led by 3-to-1 on volume of 526 million shares.
For the week, the Dow fell 1.1%, the S&P 500 was off 1.2%, and the Nasdaq was down 0.5%.
October crude oil closed at $68.02 a barrel, up 6 cents. The Energy Select Sector SPDR (XLE) rose 70 cents to $50.96.
December gold fell $1 on profit-taking to settle at $996.70, and the PHLX Gold/Silver Index (XAU) gained $2.06 to $166.25.
What the Markets Are Saying
As for sentiment, last week was a tough one from which to draw conclusions.
Maybe it was just the low volume because of the impending holiday, or maybe the public is simply tired of the market. Whatever the reason, volume fell sharply, and that left the major indices in the hands of traders who whipped prices back and forth while almost totally disregarding the news.
On a short-term basis, after the selling early in the week, and despite the late-week rally, the market is now very oversold with Moving Average Convergence/Divergence at the lowest level since July. Momentum is also oversold, and the stochastic is arching up from oversold and just short of giving a buy signal.
Chartwise, one of my favorite indices, the NYSE Composite, flashed a buy signal from its stochastic on Friday.
As for sentiment, on Friday the CBOE Volatility Index (VIX) fell to 25.26, telling us that a sustained rally could develop.
With a short week it’s even more difficult than usual to predict the daily movement of prices. But when investors ignore bad news, as they did on Thursday and Friday, that is usually a sign that prices will continue to rise.
But the chances are better than even that they will be contained within the bull channel with the support line for the S&P 500 at Thursday’s low of 992, and the resistance line at around 1,050. Initial chart support for the short term is within the current trading zone with a bottom at 980 and top at 1,010. But the primary intermediate support is at 940 to 960.
Since the short-, medium- and long-term trends are still up, I remain a buyer — especially on pullbacks.
The ETF groups to buy continue to be U.S. small caps, precious metals and other commodities, international and U.S. mid caps.
Today’s Trading Landscape
Earnings to be reported include: AeroVironment (AVAV), C&D Technologies (CHP), Casey’s General Stores (CASY), Flow International Corp. (FLOW), FuelCell Energy (FCEL), Mitcham Industries (MIND), Omega Navigation Enterprises (ONAV), Prospect Capital Corp. (PSEC), Safe Bulkers (SB) and Smithfield Foods (SFD).
Economic reports due: ICSC-Goldman Sachs store sales, Redbook and consumer credit (the consensus expects -$4 billion).
