Jobs report salvages the week
Stocks rallied strongly on Friday after the July jobs report was released, salvaging what looked like was going to be a down week for stocks. The big 200+ point rally in the Dow on Friday came on unusually light volume suggesting that some of the bigger players may not be embracing the news, and some of the charts may give us a clue as to why.
Here are the TSP fund returns for the week of July 30 through August 3.
You can see above that the larger company stocks of the S&P 500 (C-Fund) continue to outperform the small caps (S-fund). The recent dip in the U.S. dollar helped the I-fund have a big week.
From a technical analysis point of view, Friday’s big rally, which saw the highest close since early May, created a new, steeper, rising support line. The rising trend sounds bullish but this creates what we call a rising wedge formation (red lines), which actually tend to break down. As you can see there is strong resistance overhead just below 1400, so this latest rally will be tested right away next week.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The market leader is the Dow Transportation Index and unfortunately for the bulls, this leader has been lagging. It is also up against overhead resistance and that resistance is declining. This type of wedge could break to the upside, but it may be too early as wedge breaks tend to come more toward the end of a wedge (maybe at 75% complete or so) so this one may be looking for another test of the lower end of the wedge first.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I marked the volume on the above chart because volume was surprisingly light in most of the major indices considering the strength of the rally on Friday. This could mean that the “big money” wasn’t as impressed with the jobs report as the market might indicate.
If you missed it, the economy added 163,000 jobs in July, much more than expected, but surprisingly the unemployment rate ticked up to 8.3% while estimates were looking for 8.2%.
Good luck, and thanks for reading. We will be back here next week with another TSP Wrap Up.
Tom Crowley
www.tsptalk.com
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