The upbeat employment data preview that we got from ADP on Wednesday acurately foreshadowed today's Labor Department figures which were also more positive than expected. The U.S. economy added 203,000 jobs and the unemployment rate fell from 7.3% to 7.0%. This positive economic news now has financial analysts concerned that the Fed will start tapering back QE very soon. The DOW, however, seems to be thumbing its nose at taper fears today as it surged up almost 200 points. It could be that the fear of tapering has already been factored into the market with this week's steep drop reinforced by Wednesday's ADP data, but perhaps investors are getting used to the taper idea and just don't care now. Another possibility is that investors feel the Fed is bluffing with its threats of tapering and will not actually go through with it. (If this is the case, we might see markets rally strongly until tapering is actually carried out and then a plunge with major panic selling as investors realize the Fed is serious).
The DOW broke below the strong support zone at 15,850-15,900 on Wednesday and Thursday but is now closing the week above it. This is bullish behavior, but I am going to wait until next week before considering going long as today's volatility may be a short-term reaction to the employment figures. Still on the sidelines of the broad stock market.
It is interesting that, unlike the broad stock market, gold and silver prices did not react enthusiastically to the positive Labor Department data today (with its suggestion of imminent tapering). This makes sense because QE tapering would strengthen the U.S. dollar, curb inflation and would represent the government taking fiscal responsibility. All of these things are not favorable to gold prices right now. All momentum signals in the precious metals remain strongly bearish so I am maintaining my short positions in both gold and silver.
Crude oil manifested a dramatic bullish surge this week, but the rally appears to be leveling off just under $98. The cycle picture is still not clear with this market and momentum is now mixed bullish and bearish. Remaining on the sidelines for now.