Good day! This past week in the markets has consisted of a lot of ups and downs as market participants attempt to digest the turmoil in the Arab nations as well as the economic situation closer to home. While the main focus abroad is on Libya at the moment and the struggle to control the country's vast oil supplies, stateside the focus turned to the latest employment reports on Friday.
On the surface, the news was strong. Non-farm payrolls rose 192,000 to 130.52 million, while December and January payroll estimates were both upwardly revised by 58,000 jobs. Private sector employment was up 222,000 and the national unemployment rate fell from 9% in January to 8.9% when a tick higher to 9.1% had been anticipated. This latest reading is the lowest since April 2009.
Dow Jones Industrial Average (Figure 1)
Despite the growth, some estimates placed February's gains closer to 300,000 jobs. The long term unemployment rate also remains dismal at 15.9%. These are people who have been without full-time employment for 27 weeks or more and it makes up 43.9% of those currently unemployed. Hourly earnings, meanwhile are virtually unchanged, as is the average work week (34.2 hours).
The index futures were already having a hard time holding onto Thursday's gains in overnight trade heading into Friday. The rapid buying on Thursday morning had slowed after the first 30 minutes of the day and the indices formed a series of slightly higher highs throughout the remainder of the session. This type of action can be troublesome to the bulls despite the advance, because it increases wariness and it's common to see rapid reversals once the lower end of the trend channel breaks. In this case, while the bias was already favorable, it was Friday's jobs data that was the catalyst.
Selling hit immediately following the data and gained momentum intraday after 10:00 a.m. ET. A third move continued the trend into noon, exhausting it by 12:30 ET. The rest of the session was spent in a trading range with a bullish bias on the 5 minute charts heading into the end of the session, although the larger 15 minute charts still remain bearish into Monday.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) had a loss of 88.32 points, or 0.72%, and closed at 12,169.88 on Friday. Four of the Dow's thirty index components posted a gain. Each of them only managed to close fractionally in the black. The strongest performer was Travelers (TRV), which closed higher by 0.22%. The weakest performers were General Electric (GE) (-1.83%), Hewlett-Packard (HPQ) (-1.37%), American Express (AXP) (-1.31%), and DuPont (DD) (-1.25%). The Dow ended the week higher by 0.33%.
The S&P 500 ($SPX) fell 9.82 points, or 0.74%, and closed at 1,321.15. Agilent Technologies (A) (+9.18%), JDS Uniphase (JDSU) (+8.87%), Davita Inc. (DVA) (+3.66%), and Netflix (NFLX) (+3.61%) were Friday's top percentage gainers in the index. The weakest were Monster Worldwide (MWW) (-6.42%), CF Inds. Holdings (CF) (-4.16%), CA Inc. (CA) (-2.99%), and Citigroup (C) (-2.99%). The S&P 500 ended the week higher by 0.10%.
The Nasdaq Composite ($COMPX) ended the session lower by 14.07 points, or 0.5%, on Friday and it closed at 2,784.67. Netflix (NFLX) (+3.61%), Expedia Inc. (EXPE) (+2.87%), Vertex Pharmaceuticals (VRTX) (+2.24%), and Citrix System (CTXS) (+1.96%) were the strongest Nasdaq-100 performers. The weakest was Marvell Technology Group (MRVL) (-11.47%), CA Inc. (CA) (-2.99%), Staples Inc. (SPLS) (-2.95%), and Research In Motion (RIMM) (-2.89%). The Nasdaq Composite ended the week higher by 0.13%.
Nasdaq Composite (Figure 3)
Earnings and economic reports will be lighter this week, so most of the market's moving forces outside of the technicals will come from ongoing tensions abroad that have been greatly impacting the commodities markets in recent weeks. Libya is currently the main center of attention, but internal struggles and protests in a number of Arab nations (namely: Bahrain, Iran, Iraq, and Saudi Arabia) have left a lot of questions yet unanswered regarding the future of the region.
On Friday, gold prices once again pushed higher. Gold for April delivery rose $12.20 an ounce and settled at $1,428.60 on the New York Mercantile Exchange. Silver prices, meanwhile, hit 31-year highs and settled at $35.32 an ounce. Oil has been an ongoing point of focus given the Middle Eastern turmoil and it also rose once again on Friday and nearly hit $105 a barrel. It's high was $104.81. According to the AAA, gas prices at the pump now average $3.35 a gallon.
As we head into the new week, the market is continuing to favor further corrective action on the daily time frame that could easily last another week. Whether or not the market can push substantially higher after that point is uncertain. The larger weekly time frames suggest that there is room, but attempts to push through last month's highs could also easily act as traps with the overall momentum for the uptrend slowing on a series of higher highs, similar to what we have often seen intraday recently. My sell list for swingtrades (3-6 day holds) is greater than buy setups this week, but most suggest that the downside follow-through in the overall market won't be extreme enough to break the year's lows before bouncing once again.
Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.