Jobless Rates Continue to Climb

Jobless Rates Continue to Climb

(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)


Good day! Volume was light on Friday with the market ending the week relatively unchanged. The market had moved higher earlier in the week, but fell back into the second half as the indices continued to react to the upper end of the daily trend channel that has been in place over the past several months. Friday also brought with it continuing disappointment on the employment front. Ahead of the open, the Labor Department announced that the national unemployment rate hit 10.2% in October. This is the highest level in 26 years. 13 states, however, have unemployment rates that are even higher. Michigan has the highest rate due to the hits taken by manufacturing and the auto-makers in particular. Nevada and Rhode Island followed with losses of 13% and 12.9% respectively. North Dakota has the lowest unemployment rate of 4.2%. Other central plains states followed. Nebraska has a 4.9% unemployment rate, while South Dakota has a rate of 5%.

Dow Jones Industrial Average ($DJI)


Friday's session began with a gap lower into the opening bell following the early-morning data. Support hit at the open with Thursday's lows in the Nasdaq, afternoon lows in the Dow, and 15 minute 20 period simple moving average support in the stronger S&P 500. The indices reacted off these support levels and began to close the gap immediately out of the open. It was only the S&P 500 and Dow Jones Ind. Ave. that managed to do so. The gap zone served as resistance intraday to play off the larger opening weakness and the indices fell back into the zone of morning lows.

Although the market remained weak throughout the morning, the upside moves throughout the morning were stronger than the longer downside moves. This means that they took a much shorter amount of time to move higher than lower, but the upside moves could not sustain the moves for as long as the downside ones. Throughout the morning the indices experienced three waves of selling on the 5 minute time frame. The market held 11:15 ET lows on the third drop and the pace of the selling was the most gradual. The Nasdaq hugged the 5 minute 20 sma at this time, which created a buy setup that triggered into 11:45 ET, although the move could not yet break the indices through that 5 minute 20 sma resistance zone.

The market made another attempt to move higher out of the 13:00 ET correction period. This took the indices over the 5 minute 20 sma, but the market continued to hug that level until shortly after 13:30 ET. This continuing shift in momentum created lower-risk buy setups for the afternoon. When the 20 sma zone did break, it did so very quickly. Volume confirmed the trigger, but not as much as on most breakouts on a 5 minute time frame. The result was that the move was strong to begin with, but unable to sustain strong momentum. The indices trended higher with the 5 minute 20 sma as support throughout the remainder of the afternoon, but the moves were also choppier with greater overlap in price from one bar to the next on the 5 minute time frame.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) fell 14.28 points, or 0.14%, on Monday to close at 10,318.16. Only 10 of the Dow's 30 index components posted a gain. Energy was the weakest sector, while drug makers led gainers. Merck (MRK) was the biggest gainer. It closed higher by 3.2%. Pfizer (PFE), another drug maker, followed with a gain of 1.38%. Caterpillar (CAT) was the biggest loser. It fell 1.13%. General Electric (GE) followed with a loss of 1.08%.

Meanwhile, the S&P 500 ($SPX) fell 3.52 points, or 0.32%, and closed at 1,091.38. D. R. Horton (DHI) was the biggest loser in the S&Ps. It fell 15.35% after it reported a larger-than-expected loss for the fiscal fourth quarter. It was already forming a short set-up on the daily time frame as it slowed upside momentum in daily resistance, so the gap on the earnings news was a double-edged sword. Dell Computers (DELL) was the second-largest loser. It fell 9.96% after it missed estimates for its fiscal third quarter.

Gold closed higher by $4.90 and closed at $1,146.80. It ended the weak higher by 2.7%. Crude oil, meanwhile, fell slightly and ended the session at $77.47 a barrel. It ended the week higher by 1.5%.

The Nasdaq Composite ($COMPX) fell 10.78 points, or 0.50%, and it closed at 2,146.04 on Monday. Millicom Intl. Cellular (MICC) was the best-performer in the Nasdaq-100. It rose 1.75%. Research in Motion (RIMM) followed with a gain of 1.50%. Dell was the worst-performer. The second-worst was Illumina (ILMN) with a loss of 4.96%.

Nasdaq Composite ($COMPX)


As we head into the new trading week, the market is continuing to suggest that we will see larger daily to weekly corrections off this price zone. Even though the selling pace increased on Thursday, however, there is still no larger confirmation. This can lead to yet another bounce back into the upper end of the daily channel as the market continues to correct off this zone. This would help create a stronger shift in momentum off the upper end of the channel that would be more favorable for a stronger and more sustained price pullback. Nevertheless, a break in Friday's lows will trigger a short setup on the 60 minute time frame. Initial target levels for such a setup would be a drop comparable to the Thursday morning selloff intraday.