On Friday the U.S. Labor Department reported that the economy generated 248,000 jobs in September which was 33,000 more than what had been forecast by economists. The Labor Department report also showed that September's unemployment rate dropped to 5.9%, its lowest level in six years. This upbeat economic news had a dramatic effect on many markets including the broad stock market, crude oil, precious metals, and the U.S. Dollar. This is demonstrating just how volatile many markets are right now and, unfortunately, there are several technical factors suggesting more volatility over the next several weeks. We need to be especially careful with our trading as market movements in this environment could be erratic and unpredictable.
One would think that the broad stock market would be a little nervous to hear that the economy is improving. After all, an improving economy increases the likelihood of the Fed raising interest rates sooner, and the markets definitely don't want that to happen. Nevertheless, the ever fickle stock market decided to cheer Friday's employment numbers with a big rally, and the DOW surged over 200 points and closed just over the 17,000 mark. October 7-8 represents the center of a timing window for a major market reversal, but it is possible that reversal came early with last Thursday's DOW plunge to 16,674. If so, we should see this market continue up this week as it works its way towards another new high (or double top to the Sept.19th high of 17,350). If that high happens this week, I may look to sell short, but any rally now could extend into November, so we may have to wait until then for the ideal point to short sell what could be a severe market correction of 10% or more. Alternatively, if last Friday's market jubilance turns out to be short-lived, we could get a new low in the DOW (say in the 16,500 area) this week (the ideal time for a reversal), and if that happens I will consider a long position to ride a new rally up. Still on the sidelines of the broad stock market.
Friday's positive Labor Department report also gave a great boost to the U.S. Dollar Index and that drove both silver and gold prices lower. Gold has broken below my stop loss level of $1200, but I am holding onto my long position because we are now entering the center of a strong reversal zone (Oct. 7-8) and there are still technical and cycle factors that point to a short-term bottom now. The key support level to watch here is the $1180 area in gold. A clear break and close below there would be very bearish and would likely force me out of my long position. Friday's kick to the dollar now makes this currency severely overbought on several technical levels, and a correction next week seems likely. This makes me optimistic that gold will hold above its support and start to rally. Holding onto my long position in gold. Still out of silver.
As a commodity often referred to as "black gold", crude oil also turned down on Friday in response to the dollar surge. Although this puts our long position a bit in the red, cycle analysis still indicates that a normal bottom in this market is due this week, and we are also in the center of a reversal zone for crude. For these reasons I am going to hold onto my long position and try to "ride out" any price dips this week with the idea of a final bottom forming now and a subsequent rally to follow. While prices could get as low as $85, it's still possible that the Oct. 2 low of $88 was the final bottom. We will have to wait and see if it will go lower next week. Holding my long position in crude.