A two day rally brings the Dow Jones Industrial Average back above its 200 day moving average
Major stock indexes put on an impressive showing on Friday with the Dow Jones Industrial Average (DIA) gaining 165 points (1.06%) the SP500 (SPY) adding 1.33%, the Nasdaq Composite (QQQ) jumping 1.69% and the Russell 2000 (IWM) climbing 1.14% on the day.
For the week, The Dow Jones Industrial Average (DIA) climbed 0.6%, the SP500 (SPY) added 0.8% and the Nasdaq (QQQ) gained 0.5%.
Friday’s big news was the January Non Farm Payrolls report which showed just 113,000 jobs being added in January, a huge miss from the expected 190,000, and up from December’s weak 75,000. Most analysts suggest that it takes 100,000 new jobs per month just to accommodate new entrants to the work force. More uncertainty was added to the employment situation with the household survey indicating a gain of 616,000.
On My Stock Market Radar
The Dow Jones Industrial Average (DIA) reclaimed its 200 day moving average which was a significant gain on a technical basis but the index still remains below its 50 day moving average which is in a slight downtrend. Relative strength is turning up from oversold levels and momentum is turning positive.
A solid close above the 50 day moving average would point to the short correction being over and the opportunity for more gains ahead. Point and figure charting for the Dow Jones Industrial Average remains on a “sell” signal with a downside price objective of 14,950 and significant resistance levels are 15,900-16,000 and at the blue 50 day moving average line.
In other news, Apple (Nasdaq:AAPL) bought back $14 billion of its shares which bolstered the company’s stock price by 1.4% on Friday.
In other major markets, gold (GLD) and oil (USO) both showed weekly gains.
Several interesting events occurred this week:
1. Investors pulled record sums from stock funds and went to bond funds as reported by Barron’s.
2. Noted technical analyst Tom DeMark compared this period over the next few days to the days just before the crash in 1929. Bloomberg
3. Emerging markets funds have had greater outflows so far this year than in all of 2014. Reuters
4. Monday’s trading was the worst start to a February since 1983.
Economic reports were mostly negative this week with factory orders, car sales, ISM and construction spending all declining.
Volatility is obviously on the rise as triple digit moves in the Dow Jones Industrial Average become more prevalent and VIX, the S&P500 Volatility Index, also known as the fear indicator, has taken a wild ride from 12 to 21 and back to 15 since the beginning of the year, falling 11.2% on Friday alone.
Next week brings a number of important events including:
Tuesday: Janet Yellen testifies for the first time as Chairman of the Federal Reserve before the House Financial Services Committee. Markets will be eager to hear what her plans are for the continued tapering of the Fed bond buying program.
Thursday: weekly jobless claims, January retail sales, Janet Yellen testifies at the Senate
Friday: January Industrial Production, University of Michigan consumer sentiment.
Important earnings reports will come from several big hitters, even as earnings season draws to a close.
Tuesday: Sprint
Wednesday: Cisco (CSCO)
Thursday: Pepsi (PEP)
Of course, the most importantt of these events will be Janet Yellen’s Congressional debut, followed by the retail sales report on Thursday.
Bottom line: While many analysts say the correction is over, technical and fundamental indicators show that the jury is still out for the week ahead.
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