WEAK JOBS REPORT HURTS OVERBOUGHT MARKET -- OIL SERVICE BREAKOUTS
SHORT-TERM TREND IS WEAKENING... A very weak December jobs report caught an overbought market by surprise on Friday and caused nervous profit-taking. Contributing to the selling was the fact that the market was struggling with an overbought market condition. The overbought condition isn't new. The daily RSI line in Chart 1 has been over 70 for the past month. What changed was the fact that it fell back below 70 today. That's often an indication of a short-term top. The inability of the Dow to reach its upper Bollinger band may also be signalling some loss of upward momentum. If the Dow continues to correct next week, the first line of support will be the dashed 20-day moving average. Chart 2 shows that the weekly RSI is also over 70. That's the first overbought reading on the weekly chart since the bull market began over a year ago. That's not necessarily bearish, but it does suggest that the current uptrend is overextended. It may also be worth noting that last night's Dow close put it within 80 points of its early 2002 peak at 10673. It's not unusual for resistance near a previous peak to attract some selling. The Nasdaq market had a strong week. A 13 point selloff on Friday, however, prevented a weekly breakout through its early 2002 peak at 2098. That potential resistance barrier may have also attracted some selling.
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BOND YIELDS TUMBLE... The shocking jobs report caused buying in the bond market. As a result, yields fell sharply. The 10-year T-note yield tumbled to the lowest level in three months. When investors start buying bonds -- and selling stocks -- that's a sign of more caution. Another potential negative for the market is the strength in the energy sector.
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BUYING ENERGY... Rising energy prices boosted the energy sector today. [Please see midday update]. The biggest gainers were in the oil service area. Earlier today we showed some oil service leaders that were on the verge of bullish breakouts. Here's another look at two of them after the close. Noble Drilling and Transocean have broken out to 52-week highs. And both did it on rising volume.
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