Friday’s unemployment report was expected to have an influence on trading, and it did — that is, it did for a while.
Stocks rallied at the opening on news that non-farm payrolls came in at -335,000 instead of an anticipated level of -520,000. But the unemployment rate rose to 9.4% versus an expected rate of 9.2%, and average weekly hours fell to 33.1 versus a consensus of 33.2. So most of the opening gains vanished, driving stocks from what turned out to be the high of the day to the low of the day — all in about 45 minutes.
Therefore, after a promising start, the Dow Jones Industrial Average (DJI) fell back from a possible gain for the year. Treasury prices fell sending the 10-year Treasury to a yield of 3.861% — its highest in seven months, resulting in talk that the Fed may raise rates sooner rather than later.
At the close, the Dow was up 13 points to 8,763, the S&P 500 (SPX) fell two points to 940, and Nasdaq (NASD) lost less than a point to close at 1,849. The NYSE traded 1.3 billion shares, while Nasdaq traded 707 million shares. Both exchanges closed with decliners slightly ahead of advancers.
For the week, the Dow gained 3.1%, but is still off 0.2% for the year. The S&P 500 gained 2.3%, and is up 4.1% for the year. And Nasdaq rose 4.2%, and is up 17.3% for the year.
On Friday, July crude oil fell 37 cents to $68.44 a barrel, and the Energy Select Sector SPDR (XLE) closed at $52.11, down 43 cents. June gold fell $19.50 to $961.70, and the PHLX Gold/Silver Sector Index (XAU) fell $6.75 to $150.67.
What the Markets Are Saying
On Friday, I mentioned unease over the failure of the S&P 500 to cross over its 210-day exponential moving average (EMA), despite last week’s closing above the 200-day simple moving average (SMA).
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To most technicians, the exponential average has more significance because it is a weighted average that gives less importance to older data than newer, while the simple average gives equal weight to all. (Learn more about moving averages.)
There is very high correlation of success when a shorter-term average crosses a longer-term average. For example, we have found that if the 50-day SMA crosses the 210-day EMA, or even a 200-day SMA, the statistical chance of the stock or index being in an uptrend or bull market is very high. Because of its high probability of success, technicians refer to this happening as a “golden cross.”
My uneasiness was heightened on Friday when the S&P 500 again turned away from the 210-day EMA — forming a tiny double top at 949 and 952.
The barrier could fall this week, and we could then focus on the next resistance area at around 1,000. But, until then, keep your trading powder dry and only make partial new commitments to longer-term positions.
Today’s Trading Landscape
Earnings to be reported include: Alliance One International (AOI), Blyth (BTH), Ferrellgas Partners (FGP), FuelCell Energy (FCEL), IDT Corp. (IDT), Pall Corp. (PLL) and Quiksilver Inc. (ZQK).
No major economic reports are due today.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
