All Eyes on Jobs, but Watch the Dow

A higher close on a weak jobs report would be a powerful indication the rally will continue

On Thursday, weakness in small- and mid-cap stocks had a negative impact on the broad-based indices. Even the Dow Jones Industrial Average, which was within 4 points of a new closing high on Wednesday, couldn’t advance despite a new intraday high.

Despite disappointment over the Dow’s failure to close higher and trigger a Dow Theory buy signal, it was stronger than the more aggressive indices. This was mainly because of a continuation of the sell-off in the biotech sector, which lost 2.9%, and a late-day slump in technology stocks.

Today’s jobs report could have an important impact on stock prices. Thus, many traders avoided taking positions ahead of the report, which is expected to show that the U.S. economy added 200,000 jobs in March.

Weekly initial claims rose to 326,000 versus an expected increase to 320,000. And the U.S. trade deficit increased to $42.3 billion, where analysts had expected $39.3 billion. There was one piece of good news: The ISM non-manufacturing index increased to 53.1 from 51.6 in February.

At Thursday’s close, the Dow Jones Industrial Average was unchanged at 16,573, the S&P 500 fell 2 points to 1,889, and the Nasdaq lost 39 points at 4,238. The NYSE’s total volume was 3.1 billion shares, and the Nasdaq crossed 2 billion shares. Decliners outpaced advancers on the Big Board by 1.5-to-1 and by 2.4-to-1 on the Nasdaq

Nasdaq Chart
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Chart Key

After advancing through the January recovery at 4,243, the Nasdaq turned Thursday and cancelled that positive move. However, it did hold above its 50-day moving average at 4,224.

RUT Chart
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Like the Nasdaq, the Russell 2000 small-cap index is having trouble holding its hard-fought ground. It penetrated the support line at 1,182 by a hair, but also closed below its 20-day moving average at 1,183. The next support is at the 50-day moving average at 1,163. MACD is recovering and that is a positive.

Conclusion: The market continues to grind away toward new high, and overall the momentum in the big caps is positive. Only the small and mid caps have been sluggish, but that could be a natural consolidation following the enormous gains registered in February and the continuous rumbles of these stocks being in a bubble.

The real focus continues to be on the Dow Jones Industrial Average. This senior index has been slow to capture a new closing high, but many of the stocks will benefit from the recent slide in oil prices.

Jeff Saut of Raymond James pointed out that the decline in oil “would be a huge positive economic tailwind for the U.S. consumer.” Perhaps this is what the positive chart of the transports is telling us. If so, the industrials should shortly take out the old closing high at 16,576, trigger a new Dow Theory buy signal, and be on its way to a big pop.

Saut also pointed out that the Dow Theory has been wrong only once in the past 15 years, and that was in the “flash crash,” which occurred in May 2010, and the signal was quickly reversed.

Today, all eyes will be on the jobs report and its impact on the Dow industrials. Even if the report misses the mark, the Dow could close higher, and that would be a powerful indication of the continuation of the rally.

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.

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