A blowout jobs number ahead of the state of the union address – color me shocked. From the last piece, I wrote: "I think stocks can go higher as the real economy continues to suffer - while official government statistics, central banks and mainstream financial media co-ordinate (business as usual in my opinion) to do the job of "creating a rosy economic picture" that hard money advocates will see right through, as usual."
Are we seeing the beginnings of that scenario play out in real-time? The big jobs report forced the market to rebalance interest rate expectations. Yet, some analysts are calling the number another step closer to a "soft economic landing." After the data drop, stocks managed to stay on their upward-sloping trend, shown on the 3-hour chart below.
Prices are staying above the bear market downtrend line, as well as above the 4100 level, having pulled back after breaching 4200. In regards to a renewed stock bull, I also noted last week: "A move to 4175 - 4200 before a pullback into a higher low would be another reinforcing signal." The below is an updated weekly chart. Technicians may notice what seems like the development of an inverse head and shoulder pattern as well, with the neckline corresponding to just about where the price currently sits; I would like to see a weekly close above 4290 going forward.
If you own stocks and have held on – or were contrarian enough to make buys over the past few months as part of an investment strategy, then, in my opinion, there is no reason to sell unless the price falls back below the bear market trendline.
As for gold: I wondered if another leg up would happen before the pullback that I had suggested since $1925 finally materialized. I thought the price would find support at $1885, but sellers cut through seamlessly, and the breach of the uptrend line was a clear sell signal for traders. Big, deep pullbacks are the scare events that need to happen to shake off overly positive sentiment, a pre-requisite for any sustainable upward trend, and I think we are getting it in gold. Scarier still is that the price may take another leg down after a retrace from the initial sell-off (in classic technical fashion).
The above daily chart shows stochastic RSI as oversold; perhaps we get a move down to the $1832-ish spot with a corresponding breach of the 50MA before prices can solidify for the next run higher. Then again, with Jerome Powell speaking today at the Economic Club of Washington, perhaps not? Traders should be wary of more volatility, whereas long-term investors and/or accumulators of physical may see this as another chance to dollar cost average down.
Thanks and good luck.
