MARKET ENDS WEEK ON STRONG NOTE -- BOND YIELDS AND THE DOLLAR ALSO RISE -- GOLD FALLS
NASDAQ LEADS MARKET RALLY... It seems to always come back to the Nasdaq market. That's because the Nasdaq usually leads the market in both directions. That's shown by the relative strength line plotted along the bottom of the chart. That line is a ratio of the Nasdaq Composite divided by the S&P 500. The ratio line turned up around August 11 just as the last upleg was starting. It started to dip a couple of weeks ago as the market started to correct downward. This week it's moving back up again. That's encouraging if it continues. Also encouraging is the strong volume bar shown on Friday's price advance. The bounce at mid-week came on tepid volume. Today's performance was much better. For one thing, prices have bounced decisively off their 50-day average. In addition, the Nasdaq stayed above its mid-July peak at 1776.
Chart 1
SHORT-TERM LOOK... Chart 2 is an hourly bar chart and shows today's upward gap more clearly. The RSI line over the hourly bars has moved into overbought territory (over 70) for the first time in two weeks. That may explain some selling that surfaced in the market late in the day. That may be suggesting that the Nasdaq needs to retrace some of today's gains next week -- possibly even closing all or part of today's price gap.
Chart 2
WEEKLY CHARTS REMAIN OVERBOUGHT... The chart below has some good points and some potentially bad points. The good points have mainly to do with the price trend. This week's upside reversal has kept the general uptrend intact. Prices are still trading above the dashed middle line, which is the 20-week average. The uptrend will remain intact as long as that support line isn't broken. Last Friday, I expressed some concern about the position of the weekly indicators. The weekly RSI line turned down from overbought territory over 70. In addition, the weekly stochastics lines turned negative from overbought territory over 80. Both indicators improved this week, but are still negative. That doesn't mean the market can't continue rising from here. It just makes advances more difficult.
Chart 3
INTERMARKET REACTIONS... The main catalyst in today's market advance was the surprisingly strong jobs report released this morning. Lack of jobs has been the one missing ingredient in the economy's gradual recovery. New jobs were created for the first time in eight months. No wonder the market liked it. That sign of strength, however, crushed the bond market. The 10-year T-note yield bounced sharply off its 200-day moving average. The price of T-bonds and notes fell sharply. Bonds selloff and yields rise on hints of economic strength. The dollar does the same. The dollar and yields have been moving in the same direction. They do so again today. Chart 5 shows the Dollar Index bouncing off chart support at its June low. The bouncing dollar took its toll on gold. Bullion closed more than $13 dollars lower at $370. That caused heavy selling in gold shares. [Please see our mid-day update on gold shares]. It's too soon to gauge the longer-range significance of these moves. But it's clear that today's job report has caused a lot more optimism in the financial markets.
Chart 4
Chart 5
Chart 6
