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Bottom Falls Out as US Jobs Falter

CMC Markets

While US indices have been creeping to new highs in recent weeks, signs of exhaustion have been growing, including negative divergences, and a big non confirmation of US stock gains by commodity losses. With growing economic, financial (Cyprus mess) and political (Italy, North Korea and elsewhere) headwinds growing, it increasingly seemed as through inflows of hot QE money were all that has been propping up US stocks. This week, US indices have been teetering as first PMI than early employment numbers showed that the US is not immune to a slowing global economy. The Russell 2000 already broke down this week suggesting upward breadth had narrowed dramatically. Today’s poor US nonfarm payrolls report, where the job drop were more than can be attributed to the upward revision to last month’s number appears to be the final nail in the coffin of the recent bull run. US indices fell on the news like the rug had been ripped out from under them. With a weekend approaching, it appears a full blown and overdue correction in US indices may now be underway. Canadian employment numbers were also poor. Not only did Canada give back all of last month’s big gain, but nearly all of the job losses were in full time positions. The loonie has come under a lot of pressure on this disappointment. Overseas markets have been weak overnight. The Nikkei started off strong but scaled back its gains as some traders took afternoon profits ahead of the weekend. Similarly, JPY clawed back some of its recent losses in late trading in what appears to be a normal trading correction. The S&P/ASX 200, continued to fall however, dragged down by falling commodity prices, which suggests the S&P/TSX indices may also continue to struggle. European indices are being driven lower into the weekend after both Eurozone retail sales and German construction PMI came in lower than expected. This indicates that the regions problems are increasingly seeping into the core economies. Amazingly, EUR has managed to hold on to yesterday’s gains but upward momentum has stalled and with major indices like the FTSE, DAX and CAC all down 1-2% today, it seems only a matter of time before EUR resumes its broader downtrend. With sentiment turning increasingly pessimistic toward Europe, and cautious toward the US, traders continue to lower their expectations for resource demand. This has sent energy, copper and grain prices lower overnight. The one exception has been precious metals where gold and silver have stabilize near $1,550 and $27.00 respectively while platinum has bounced back a bit, with some Economic News Significant economic announcements released overnight include: US nonfarm payrolls 88K vs street 190K, previous revised up to 268K from 236K US private payrolls 95K vs street 200K vs previous 246K US manufacturing payrolls (3K) street 10K US unemployment rate 7.6% vs street 7.7% Canada jobs change (55K) vs street 6.5K vs previous 50.7K Canada full time jobs (54.5K) vs previous 33.6K Canada part time jobs (0.5K) vs previous 17.2K Canada unemployment rate 7.2% vs street 7.0% US trade balance ($42.9B) vs street ($44.6B) Canada trade balance ($1.0B) street $0.1B Eurozone retail sales (1.4%) vs street (1.2%) Germany factory orders 0.0% vs street (1.5%) Germany construction PMI 41.9 vs previous 43.8 Japan leading indicator 97.5 vs street 97.3 Economic reports due later this morning include: 10:00 am EDT Canada PMI street 52.5 vs previous 51.1 3:00 pm EDT US consumer credit street $15.0B North American indices US30 is selling off today, breaking 14,500 with next downside support near 14,400 then a test of 14,340 key trend support. . SPX500 is breaking down today, taking ot 1,550 with channel support near 1,535 then 1,525 and 1,510. NDAQ100 is breaking down today taking out a key support line near 2,780 and causing an ascending triangle to fail. Next downside support near 2,750, 2,715 and 2,700. US SmallCap 2000 continues to slide with falling RSI indicating downward momentum accelerating. Currently near 910, next support appears near 890 with resistance falling toward 925. Canada60 remains under pressure taking out 715, which may become new resistance. Next downside support appears near 700 then 692. UK and European Indices UK 100 is breaking down decisively today taking out 6,320 and 6,300 while RSI has sliced through 50 indicating downward momentum accelerating. Next key support on trend appears closer to 6,200. Germany30 is breaking down in a major way today. It smashed a key trend support line near 7,800 and nosedived straight toward 7,700, while RSI fell under 50 confirming a downward turn in momentum. Over time, 7,575 or 7,500 could be retested with initial bounce resistance in the 7,740-7,760 area. France 40 broke a key trend support line near 3,680 today and remains under distribution with next key channel support on trend near 3,600. Italy 40 remains under distribution, steadily sliding within a falling channel. Currently near 15,180, next key support levels appear near 15,000 then 14,850 with resistance dropping toward 15,320. Spain 35 appears back under distribution, slumping back from 8,000 toward 7,800 channel support. Next support tests on a breakdown appear near 7,600 then 7,475. Commodities Gold has bounced up off of $1.542 toward $1,555. A positive RSI divergence suggests downward momentum slowing, but it needs to clear $1,560 to confirm the start of a rebound where the $1,585 to $1,600 area could be retested. If it fails though, $1,525 could still be retested. Silver is stabilizing near $27.00, a measured objective from a previous channel. Oversold RSI suggests it could be due for a rebound with initial resistance near $27.50 then $28.25. Support near $26.60 then $26.00. Copper held $3.30 but remains in a downtrend, unable to regain its $3.37 last breakdown point. Next key support on trend appears closer to $3.25. US crude successfully retested $91.75 reverse H&S shoulder support and has rebounded toward $92.60. Upside resistance remains in place near $93.00 then $94.00, a former neckline. UK crude is holding above $105.00 and the extension of an old resistance line but needs to clear $107.00 to confirm this selloff is over and a rebound toward a potential retest of $109.00 or $110.00 underway. Growing positive RSI divergence suggests downward momentum easing. Gasoline is loitering around $2.90, above a recent higher low near $2.85 but short of the key uptrend support line it broken near $2.95 as it pauses to figure out where to go from here. Natural Gas remains in an uptrend, holding above its $3.85 recent breakout point. Resistance remains near $4.00 then $4.08. FX USDCAD has popped up through $1.0180 and is testing downtrend resistance near $1.0220. RSI suggests momentum turning back in USD favour. Next resistance on a breakout near $1.0275. EURUSD is breaking out of a downtrend today, confirmed by RSI breakout over 50 indicting upward momentum growing. Having cleared $1.2880, next key resistance tests appear near $1.3000 and $1.3120. GBPUSD is rallying today, driving up through $1.5200 and testing initial resistance near $1.5325. RSI suggests upward momentum accelerating with next resistance near $1.5400.

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