The jobs report released on Friday showed that the U.S. economy added 142,000 jobs last month which was far below the 200,000 expected by most analysts. This bad bit of economic news seemed to cause a knee-jerk reaction on Wall Street, and the DOW plunged over 200 points in early morning trading. The market soon recovered all of that loss and more, however, as it rallied strongly the rest of the day with the DOW closing at 16,472 and a 200 point gain. Investors likely realized (after the initial plunge) that the jobs report was actually "good" news as it points to slow economic growth and gives the Fed a good reason to further delay the first interest rate hike.
Technically speaking, Friday's market behavior was bullish, but all markets could be very volatile over the next two to three weeks so we shouldn't take large swings up or down too seriously. Despite Friday's rally, directional momentum remains nearly 100% bearish in the DOW, S&P 500 and NASDAQ. As I mentioned in Friday's blog, we enter another strong reversal zone for all markets this week so any rally may encounter resistance by Friday and start to turn down. I am going to raise my stop loss point for my short position in the DOW to a close over 17,000. This is a bit above the entry point of our Aug. 27 short position but below the entry of our Aug. 13 short position so if this stop is triggered we should not take any loss. An equivalent stop loss point in the S&P 500 would be at 2020. Holding my short position in the broad stock market and watching carefully any rally into this Friday.
Gold and silver could also continue their rally from last Friday into this week, but they too will encounter a strong reversal zone, especially in the second half of the week, and this could turn precious metal prices back down again. There is some resistance for gold at $1160 which I suggested as a stop point for our gold short position, but the critical level we do not want to see breached is $1170. The critical level for silver is $16. Any close above these prices would suggest that the market is turning bullish. We will watch carefully if any rally this week comes close to these numbers. We could get a strong bearish signal if either gold or silver breaches its critical price, but not both, as that would be a case of intermarket bearish divergence and could be a good spot to go short in silver. Holding my short position in gold but still out of silver.
In my last blog (early morning on Friday) I wrote: "A dollar surge would likely force precious metal prices lower. This may happen, but could the dollar take a dip first and push the metals higher? Yes, anything is possible in these markets right now; however, if the dollar drops, there is strong support at 95, and it could easily resume its rally from there, especially since its directional momentum is now strongly bullish."
The dollar did indeed make a significant dip on Friday and nearly touched 95 before bouncing back up and closing at 95.91. Directional momentum in the U.S. Dollar Index is still strongly bullish so if the 95 support holds, we could see the dollar push higher and put downward pressure on gold and silver prices.
There are currently some short-term chart patterns that are suggesting an imminent rally in crude oil prices; however, directional momentum is still very bearish for crude so we can't be certain if they are valid. Should such a rally materialize, we could see prices go as high as $54. This coming Friday and the following Monday is a strong reversal zone for crude oil. If prices edge lower into Wed.-Fri. this week and touch or go below last week's low ($43.97) I will consider going long for a possible rally to $50 or higher. On the other hand, if crude doesn't move lower and instead rallies strongly into Friday (above $50), I may consider a short position. On the sidelines of crude oil for now.