Stocks Rally on Upbeat Jobs Data
Stock markets closed higher into the end of the week, as the monthly Non Farm Payrolls report for May came in higher than market analysts had originally expected. The Thursday and Friday sessions marked the best two-day performance since January (gaining 2.1%), and this is largely the result of changing expectations for how the labor market data would pan out throughout the week.
The final Non Farm Payrolls report showed an increase of 175,000 jobs in May, while the April numbers were revised lower (to 149,000 jobs). This result was particularly surprising because earlier in the week, the ADP employment report was especially weak, showing a monthly rise in private employment of only 135,000 jobs for the May period. Once the ADP numbers were made public, many analysts started to revise lower their expectations for the NFP survey on Friday. Many traders took this information and used it to enter into bearish positions in stocks. Once the final labor market result showed strength, these positions had to be reversed, and this sent the S&P 500 to new highs for the week, just south of 1640.
Next week, traders should prepare for slowdowns in volatility as the summer trading sessions tend to be marked by range trading, rather than situations that call for breakout positions. It is important to pay special attention to central bank commentaries, as there is a large section of the analyst community that is arguing for an end to the US Federal Reserve’s third round of quantitative easing. If we do see comments suggesting this stimulus is no longer necessary, it will be much more likely we will see a negative outcome for the June month.
The S&P 500 looked as though it would begin crashing through major support levels and establish a major top at the highs above 1680. The late week reversal, however kept the medium term uptrend channel intact so as long as historical support in the 1590 region holds, the bias remains bullish. Traders can look at dips as new buying opportunities, with stops below 1590. If this support level does eventually break, the next downside target can be found at 1530.
The FTSE 100 moved higher with the S&P 500 into the end of the week, but most of the technical damage has been done to the daily charts, and this latest rally can be used to establish new sell positions. Specifically, the FTSE has broken through all of the Fib support from the rally from 6160. So at this stage, this level marks the next downside target.
The DAX was lower for most of the week, but the rally on Friday created conditions where there was no daily close below the 8100 psychological support level. This area is the 38.2% Fib retracement of the rally from 7390 and the bias remains bullish above this area.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.