U.S. Unemployment Rate Tops 10%

U.S. Unemployment Rate Tops 10%

(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! Despite a harsh response to last Wednesday's Fed Rate decision, in which the FOMC left rates unchanged, the market turned itself around into Thursday morning. The indices had gapped higher into the open and continued to trend throughout the session. That trend remained in place into the weekend as well, although Friday began on a weak note with a gap lower into the open. The market plunged in premarket trade on Friday following the 8:30 am ET economic data. The index futures received a harsh morning wake-up call. The U.S. unemployment rate hit a surprising 10.2%. Additionally, nonfarm payrolls fell by 190,000. Both of these were higher than expected.

Dow Jones Industrial Average ($DJI)


By 8:50 am ET the market managed to find support. The index futures rounded off at lows as market participants began to digest the morning data. Both August's and September's payroll numbers were revised to show fewer jobs lost than previously estimated. This made up for missing estimates in October. The market has also been expecting the unemployment rate to hit the 10% zone this year, so it seemed to cool off and take that news in stride as well. By the time the opening bell rang the market was already pulling up off lows and forming a Phoenix™ on the 2 minute time frame. It triggered a buy within minutes of the bell and the indices quickly recouped the morning's losses.

By 10:00 am ET the index futures were back to premarket highs and the highs that took place into the 8:30 ET economic data. The extreme momentum on the rally left it exhausted by the time those levels hit and the pace of the buying slowed. This created a Momentum Reversal soon after 10:00 on the 2-5 minute time frames. This second-strongest move of the day followed as the indices took back the day's gains and then some. Nevertheless, they still held the morning lows and another Momentum Reversal pattern formed on the 2-5 minute time frames heading into the 10:15 ET correction period. This time it was a buy setup.

The back and forth action in the morning with strong moves in both directions set the mood for the remainder of the day. When this happens, it increases the odds of a trading range. Typically the range will narrow and the moves at the beginning of the range yield the best reward for reversal strategies. As the range narrows, however, the risk increases until the pace shifts within the range. When there is a slower move in one direction than average, then the odds are high that the range will break in the opposite direction. A small version of this took place in the Dow around 14:45 ET. Slower upside along the 5 minute 20 sma on light volume was followed by a stronger move in the opposite direction with a break lower that lasted until the 15:00 ET correction period. The shift was not strong enough to break free of the larger range though and the market pulled back to the upper end of the range in the final hour of trade.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) rose 17.46 points, or 0.17%, on Friday to close at 10,023.42. 12 of the Dow's 30 index components posted a gain. General Electric (GE) was the best-performer in the Dow on the day. It rose 6.24% following two upgrades. Travelers (TRV) was the second-best performer. It rose 2.49%. Home Depot (HD) rose 1.76%. Disney (DIS) was the biggest loser, falling 1.52%, followed by a 1.4% loss in American Express (AXP) and a 0.92% loss in Kraft (KFT).

Meanwhile, the S&P 500 ($SPX) rose 2.67 points, or 0.25%, and closed at 1,069.30. International Game Tech. (IGT) was the best-performer. It rose 8.73%. American Intl. Group (AIG) was the hardest hit in the S&P 500. It fell 9.67%. Sunoco Inc. (SUN) was a close second with a loss of 9.35%.

The Nasdaq Composite ($COMPX) rose 7.12 points, or 0.34%, and it closed at 2,112.44 on Friday. Nvidia (NVDA) was the best-performer in the Nasdaq-100 and second-best in the S&P 500. It rose 7.25%. Starbucks (SBUX) was the second-best performer in the Nasdaq-100 (+7.21%) and the third-best in the S&P 500. Hansen Nat. (HANS) was the worst-performer, falling 6.81% on the day, but up substantially from its opening level after gapping down to its 100 day sma on earnings.

Nasdaq Composite ($COMPX)


This is going to be a light week for economic data and earnings season is now winding down. 440 of the S&P 500 index components have already reported earnings with 80% beating forecasts. Earnings haven't been enough to break the market back above the highs at the start of the season though. Despite beating forecasts, year-over-year the S&P 500 overall is still looking at a 15% decline in profits since the third quarter of 2008.

The market is still dealing with a lot of weekly resistance. This will make it difficult for the indices to easily bust through last month's highs, although the current pace of the buying makes it possible to test that level within the week. Gold has been of particular interest for many market participants recently (XAU/USD), but be careful. Gold has had three strong waves of buying since September. This has extended the trend. Despite the momentum thus far, gold is going to have a more difficult time continuing to push higher. A daily correction is likely to begin this week, but the momentum should keep it from sustaining a rapid reversal and will instead get off to a slower start similar to the rounded daily highs experienced in mid-September and mid-October.