Dow futures likely to struggle at new highs

Good day! Friday's session was an active one for the market following the day's highly anticipated employment report. The index futures were favoring the upside in premarket trade after a long period of congestion that began on Wednesday evening. Slower downside into the early-morning hours, followed by a rapid move to the upper end of the 30-minute trading range around 2:45 a.m. ET shifted the momentum within the congestion to favor an upside breakout from the trading range. The breakout triggered shortly after 6:00 a.m. ET and gained strength with the 8:30 a.m. economic data.

Dow Jones Industrial Average (Figure 1)

According to the Bureau of Labor Statistics, nonfarm payrolls rose by a seasonally adjusted 216,000 in March. This fell into the range of anticipated gains, but was better than most estimates, which averaged an increase of 185,000. Although government payrolls fell, private sector payrolls increased 230,000. The ADP had earlier estimated a gain of 201,000 jobs. In addition to this positive report, the previous month's gains were adjusted higher by 2,000 to 194,000.

Despite the increase in positions, the number of people entering the workforce has also been growing, which means that the increase isn't enough to make much of a dent in the overall unemployment rate, which ticked lower to 8.8% (13.5 million) in March from 8.9% in February. Nearly half of those currently unemployed, however, fall into the long-term category of more than 27 weeks. The average workweek (34.3 hours) and average hourly earnings ($22.87) remained unchanged, meaning that they are not keeping up with the increased cost of living. Additionally, many of those returning to work are having to settle for wages that were lower than they had earned in their previous positions.

Following the rally out of the 8:30 a.m. ET employment data, the index futures attempted a new high into 9:15 ET. The pace of this move was slower than the data reaction and only created a slightly higher high before it began to pull back once again prior to the opening bell. This 2T reversal gained momentum following the bell. Things turned around once again, however, with the next round of data at 10:00 a.m. ET.

The Institute for Supply Management reported that its manufacturing index for March came in at 61.2, down slightly from 61.4 in February, but still one of the strongest months since 2004. Readings over 50 indicate expansion and the index has remained over 50 for 20 straight months. Nevertheless, the cost of raw materials has been on the rise and the ISM's price index climbed 3% to 85.0, which is the highest it has been since July 2008. The market shrugged off this detail, as well as the 1.4% decline in construction spending that was also released at 10:00 ET, and the indices reversed course once again to head for new highs for the week.

S&P 500 (Figure 2)

The pace of the early-morning rally began to shift as morning passed. Slower upside into noon led to only slightly higher highs on the Dow Jones Ind. Average and S&P 500, which created a 2T reversal pattern once again. The Nasdaq was stronger at this point and lacked the clear reversal pattern, but turned with the rest of the market nevertheless. The Dow had successfully managed the slightly higher daily high I'd spoken of throughout the week, while the S&Ps nearly struck February highs.

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