STRONG JOBS REPORT BOOSTS BOND YIELDS AND THE DOLLAR -- GOLD PLUNGES -- CHIPS, TRANSPORTS, REITS, AND SMALL STOCKS STRENGTHEN -- MAJOR STOCK INDEXES TEST LONG-TERM RESISTANCE LINES

BOND YIELDS AND DOLLAR BOUNCE... Sometimes good news produces a bad effect. That's especially true when dealing with financial markets. Today's unemployment report dropped to 10% and payrolls fell by an unusually small amount. That good news was given a positive reception by most markets. By day's end, however, commodities and stocks were on the defensive. The good news caused a big jump in the 10-Year T-note Yield (Chart 1) as bond prices fell sharply. The jump in bond yields (and a more positive view on the U.S. economy) pushed the dollar higher. Chart 2 shows the Power Shares Dollar Bullish ETF (UUP) surging 1.5% on the heaviest volume in two months. The UUP is now challenging its 50-day moving average. Chart 3 shows the Euro (which trends in the opposite direction of the UUP) falling below its 50-day moving average for the first time in several months. The rising dollar caused profit-taking in commodities, and gold in particular.

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PRECIOUS METALS TUMBLE... The rising dollar pushed most commodities lower today. Precious metals were hit especially hard. Gold lost $58 (5%) on very heavy volume as shown in Chart 4. The streetTracks Gold ETF (GLD) is threatening its 20-day moving average. A decisive close below that initial support line would signal a further drop toward its lower Bollinger band (and 50-day average) near 106. While silver lost 3%, platinum suffered a much bigger loss. Chart 5 shows the Platinum ETN (PTM) plunging nearly 10% on huge volume. That certainly suggests a short-term change in momentum for precious metals which also took a toll on gold and silver stocks.

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GOLD STOCKS MEET PROFIT-TAKING NEAR 2008 HIGH... Gold and silver stocks took a drubbing today along with the commodities. Chart 6 shows the Market Vectors Gold Miners ETF (GDX) falling more than 5% in extremely heavy trading. That's a bad combination. In addition to the rising dollar and falling gold prices, there may be another technical explanation for the profit-taking in the GDX. On November 23, I warned that the GDX had entered a major resistance zone near its 2008 high. Chart 7 shows the weekly downside reversal (in heavy trading) taking place just below its 2008 peak near 56. I also warned that Newmont Mining (one of the biggest GDX stocks) was nearing resistance along its 2008 high just over 56. Chart 7 shows this week's downside reversal taking place from that point. I warned in that earlier message that gold stocks might experience profit-taking along those highs, which would most likely coincide with profit-taking in the commodities as well.

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POSITIVE STOCK MOVES... At least four market groups saw positive trend developments this week. The Semiconductor (SOX) Index rallied enough to challenge its October high. That strong action gave a boost to the technology sector. Chart 10 shows the Dow Transports breaking through its autumn high to reach the highest level in a year. Although financial stocks continue to lag behind the rest of the market, REITs have perked up. Chart 11 shows the Dow Jones REIT Index climbing to a three-month high. Even small caps, which have been lagging behind of late, showed some improvement. Chart 12 shows the Russell 2000 Index closing back above its 50-day moving average.

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STOCK INDEXES TEST MAJOR RESISTANCE LINES ... Stocks gave up most of their early gains as the day wore on, but still closed higher. One of the reasons for the market's lack of upside progress may be due to the presence of some long-term resistance points. Chart 13 shows the S&P 500 nearing a major down trendline and 50% retracement point near 1120. Chart 14 shows the Nasdaq Composite Index struggling with its early 2008 lows near 2200. Those resistance lines represent an important test for the market's uptrend.

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