Jobs report, Powell, help push stocks higher

Jan. 4, 2019 – We got a second consecutive week of gains from stocks. We’re still a long way from the highs, but not setting new lows is a welcome change. We’ll talk about the resistance stocks will encounter on the way back up down below, but there’s plenty of other news to digest from this week before we get to that.

The week started on a positive note, with stocks rising Monday after President Trump tweeted over the weekend that trade talks with China were progressing well. The actual trading session was pretty light, with Monday stranded between the weekend and the New Year’s holiday.

After the holiday, 2019 got off to a lackluster start when China reported weaker-than-expected economic data. Stocks were generally able to shake that off and finished with modest gains on the day. 

The weak Chinese data seemed more like ominous foreshadowing when, after the close Wednesday, Apple (AAPL) lowered its sales forecast, largely attributing lowered estimates to softness in the Chinese market, which the company blamed in part on the ongoing trade dispute between the U.S. and China. That news sent most stocks, in particular the tech sector sharply lower, and they kept falling through the day Thursday. 

As we’ve seen a number of times recently, Thursday’s ugly sessions was forgotten by Friday morning. Futures were trading higher, allegedly on optimism about trade talks scheduled to begin next week with China, even before the jobs report was released at 8:30.

And what a jobs report it was! The economy added 312,000 jobs in December, compared to estimates for about 180,000 new jobs. October and November’s additions were also revised higher, while average hourly earnings also rose. The unemployment rate ticked higher, but that was due to workers joining the labor force, which itself is arguably a positive sign. 

The rally was further bolstered by comments from Fed Chairman Jerome Powell. Speaking at a conference, Powell acknowledged that the market was sending signals about risks to economic growth. Powell also said that inflation remains low, allowing the central bank to be “patient” as it charts the future course of monetary policy. That really got things going, and all three of the major indices added more than 3% on the day. 

Going into next week, trade and the government shutdown will be the major stories. Talks on reopening the government seem to be going nowhere after a series of meetings and briefings this week resulted in a lot of camera time, and no real progress on legislation.

Trade is also unlikely to be resolved any time soon. The talks beginning next week are, for now, relatively low-level, with none of the high-level U.S. negotiators participating.  

Indices

All told this week, the S&P gained 2.0%, the Nadsaq rose 2.6%, and the Dow Jones added 1.7%.

This week we will be looking at two charts for each of the major indices. Since the market has recovered and hopefully found a bottom, we have located all the major areas of support and resistance, as they will come into play more as the market stabilizes. The road to recovery is always slower, and while many of these levels are weaker than others, they could potentially play a major role in how the market reacts.

We will be looking at the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average on 2-year charts, so you are able to get a bird’s-eye view why those levels are important. We must expand to a 5-year chart for the Russell 2000, since it was the hardest hit of the major indices. We will mainly be focusing on the 3-month charts, as the moving averages will be coming back into play. We would normally not include so many levels of support and resistance, but the fact that you are able to see nearly the same amount of lines on the 3-month charts as you do on the 2-year charts really signifies how fast the market has moved in such a short amount of time, and how truly big the daily candles have been in the recent past when compared to the daily candles during market stability.

S&P 500

With the market holding the new-found strength we saw last week, it’s possible that we have finally found a bottom to the heavy selling. It was concerning to see the S&P 500 drop back below its 8-day moving average on Thursday, but the index was able to find support at the 2,440 level. After opening back above its 8-day moving average on Friday, the S&P found strength, but ran out of steam when encountering the 20-day moving average. It will be interesting to see how it reacts to the 20-day moving average on Monday but will hopefully find the additional strength to rise above, giving it another level of support. It will need all the support it can get, because the levels of resistance ahead are far stronger than the levels of support below.

Nasdaq Composite

The 8-day moving average and the level of support around 6,450 really helped to keep the Nasdaq afloat this week. The Nasdaq closed on Friday right at its 20-day moving average and a level of resistance around 6,750. This convergence of resistance at a moving average could be a difficult hurdle for the index to overcome, but luckily, that level of resistance is weaker than the levels we will encounter at 6,900 and above. As with the S&P, the levels of resistance above will be stronger than the support below, but the Nasdaq has more levels of support that any of the other major indices.

Dow Jones Industrial Average

The Dow Jones is also pressing its 20-day moving average to close the week. It has been the best performing of the major indices and has a wider gap between its current level and support around 22,400. It was able to break through the weaker level of resistance around 23,300 and will have additional support from its 8-day moving average but should the index retreat when encountering the 20-day moving average, it will have little in the way of technical support until it reaches 22,400. If it can overcome the 20-day moving average, it will begin to run into light resistance, with heavy resistance starting at 24,000 and above. 

Russell 2000

We must look at the Russell on a 5-year chart to find support for the index should it fall from its current level. The Russell was not as strong as the other major indices this week but was able to break through resistance around 1,360 and close above its 20-day moving average Friday. Hopefully it will be able to use the 20-day moving average to continue momentum, because the Russell is already encountering strong resistance from levels created back in 2017. If the Russell can overcome the 1,425 level, it will have a lot of room to the upside to advance before again encountering heavy resistance around 1,475.

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