Jobs Versus Stimulus — Who Wins?

We end a data filled week with the September jobs report today. The estimates are for 110,000 new jobs to be added and the unemployment rate to rise back to 8.2%. One headline last night stated that jobs report may be more important to the election than to the markets. The other factor that will soften any negative data from jobs report will be the Fed stimulus is based on adding jobs. Thus, it will be given a pass with the stimulus only in place for the last two weeks of the data. Clearly not enough time to impact the outcome. Thus, the normal importance on trading will not be present and investors can focus more on earnings from the third quarter starting next week.

Gold is attempting to break above the $1800 mark currently. The catalyst Thursday came from Mr. Draghi as his comments on support the euro no matter what, and the bond buying program were easing tension in the financial markets. That information fueled again the outlook that the actions being taken by the ECB will be inflationary in time. Like the US Federal Reserve the ECB plan is open ended and that is positive for gold prices.

Looking at the chart of gold, the close on Thursday above the $1787 mark was a break above one resistance point and the next hurdle will be the $1800 mark. Based on the global effort towards stimulus I don’t see much standing in the way of the metal moving higher. The close on GLD at $1782 was a near term breakout for the ETF. Silver ETF (SLV) closed above the $33.71 mark as a breakout for that metal as well short term. The miners have picked up as well with both GDX and SIL moving back to the top end of the current consolidation range and ready to break higher.

Housing is back in the headlines as the negative sentiment continues to give way to positive possibilities of a recovery in the process. The homebuilders have been leading the charge as they continue to report positive numbers. XHB, SPDR Homebuilders ETF has moved to a short term high at $26 in mid-September. It has since tested short term support at $24.40 and is in the process of moving back towards the previous high. Is there still room to move higher? Take a look at the weekly chart and you will see there is plenty of room to grow. The next hurdle to jump will be at $29.65 which leaves plenty of upside for the fund and the stocks within the sector.

The energy commodities bounced back on Thursday following some selling on Wednesday. Crude oil broke support near the $90 level and could have triggered some program selling or emotional selling in the commodity. The bounce back above $91 on Thursday showed the buyers are still in the game. Supplies have been shrinking according to the weekly inventory data which is creating the image of demand rising. That hasn’t been true based on all the other information. Thus, crude remains a volatile question short term. Gasoline spiked up 5% on Thursday following a drop of 4% on Wednesday. The upside pressure remains on gasoline as refineries are creating a challenge. The are not operating at full capacity as result of outages and normal maintenance. Watch UGA on the upside if it breaks above resistance at the $61.50 mark.

Two negatives from Thursday. First, the dollar fell on what is viewed as positive sentiment in Europe. The ECB President, Mr. Draghi was out making positive comment relative to the conditions in the financial system for Spain and Europe overall. The 50 day moving average crossed below the 200 day moving average which is the death cross for the technical analyst. The dollar is in trouble, plain and simple. Watch the downside momentum build short term along with the side effects to oil and other commodities and imports. Second, the yield on both the ten and thirty year Treasury bond rose and the price of the bonds in each case broke support. Negative for the bonds short term. This is likely another short term event for the bonds, but it does offer some trading opportunities.

The bias remains with the buyers as stimulus from the Fed is a difficult thing to fight. The broad indexes have pushed back towards the September highs and we have to be aware of earnings starting next week. There have been plenty of warnings moving towards the beginning of earnings announcements, but the truth is always more damaging than the warning itself. Take what the market gives and fully aware of the risk in this current market environment.