The major stock indexes are rallying on a better than expected unemployment number. Non-farm payrolls for the month of July dropped 247,000, less than consensus estimates of 300,000.
While most news wires are reporting this as an extremely positive number and the major stock indexes seem to agree with a strong rally on the heels of one of its best one-month performances in years (more than 1300 points since July 7 in the DJIA) , we could be nearing an important turning point.
Both the Dow Jones Industrial Average and S&P 500 are near the 38.2% retracement of the move from the all time highs to the March lows (see charts).
Market technician Garrett Jones yesterday put out a release stating that Aug. 7 could be an important turning point in equities. Jones doesn’t think the bear market is over even though he had correctly predicted the recent correction prior to the March lows. He states that Aug. 7 and mid-September can present major turning points.
The chart below was created by Jones prior to the March low.
Dollar back on track?
If the rally on a pretty significant drop in non-farm payrolls is not confusing enough, the dollar may be returning to more normal market fundamentals. The dollar for most of 2009 has rallied and negative economic news and has broken sharply on positive news. The common analysis being that people run to the dollar because of its reserve currency status when the world appears to be coming to an end, and flees from the dollar when a recovery appears to be at hand because of the expected inflation. Today, however, the dollar is rallying on the better than expected employment number.
Joseph Trevisani, chief market analyst for FX Solutions, stated, “This a sign that the currency markets are weaning themselves from the good news is bad news for the dollar syndrome and returning to fundamental measures of economic growth and interest rate cycles.”
