TERRIBLE JOB NUMBER SINKS STOCKS -- THE OTHER SHOE MAY BE ABOUT TO DROP -- BOND YIELDS PLUNGE AS PRICES RISE -- FALLING DOLLAR KEEPS GOLD STRONG -- WORST GROUPS ARE BROKERS, HOMEBUILDERS, REITS, CHIPS, AND TRANSPORTS

WEAK AUGUST JOBS REPORT IS A STUNNER ... Economists were expecting nonfarm payroll jobs to expand by 110,000 during August. Instead, jobs dropped by 4,000. That's the first monthly loss of jobs in four years. June and July job increases were also reduced. According to Bloomberg, not one economist that it polled was expecting a drop in jobs. Given the very weak news, all financial markets are acting pretty much as expected. Stocks are dropping sharply, especially those tied to housing like homebuilders, retailers, and REITS. The economically-sensitive transports are also being hit hard. And as has been the case lately, financials (especially brokers) and small caps are leading the market lower. Semiconductors are weighing on the Nasdaq. The only group to gain ground is gold. Gold rose again today on the back of a falling dollar. With rates and stocks plunging, Treasury Bonds are having a strong day. Big board breadth is showing a negative five to one ratio. If this morning's downward trend in stocks continues through the rest of the day -- and if volume picks up notably -- we could be in for a rough September.

Chart 1

Chart 2

Chart 3

Chart 4

BOND YIELDS PLUNGE TO ONE-YEAR LOW... The preceding charts show some of the more notable intermarket moves today. Chart 1 shows the 10-Year T-Note Yield plunging to a new 52-week low (as bond price rise). Plunging yields suggest more economic weakness and the increased likelihood of a Fed rate cut. Chart 2 shows the NYSE Composite Index threatening its 200-day average after a failed attempt at its 50-day line. A weaker economy is bad for stocks, especially small caps. Chart 3 shows Russell 2000 iShares gapping 2.4% lower after failing at its 200-day moving average line. The dollar is falling against all major currencies today, including the yen. That's keeping a bid under the gold market. Chart 4 shows the streetTracks Gold Trust (GLD) hitting a new 52-week high today. Not surprisingly, the CBOE Volatility (VIX) Index is jumping as well. MORE ON THAT LATER.