Bulls Save Dow Jones

The SP500 (SPY) jumped 1.1%, the Nasdaq (QQQ) added 0.76% and the Russell 2000 (IWM) gained 0.79%.

For the week, the SP500 declined 0.1%, the Dow Jones Industrial Average (DIA) dropped 0.4% and the Nasdaq posted a fractional gain.

Good news was good on Friday as the rally was largely credited to the better than expected Non Farm Payrolls and unemployment reports which helped stock market bulls break a five day losing run for major U.S. indexes.

On My Stock Market Radar

In the chart of the Dow Jones Industrial Average below, we can see how the index is still in a bullish configuration, above both its 50 and 200 day moving averages and with its price in a general uptrend stretching back to October.  

However, Parabolic SAR, a price based trading system, also known as “stop and reverse,” shows the index to be on a short term “sell” signal in response to recent negative price action and trend.
 

chart courtesy of StockCharts.com 

Last week’s fundamentals were mostly positive, particularly on Friday, as the Non Farms Payrolls report showed that the economy added 203,000 new jobs in November and that overall unemployment fell to 7%.

Earlier in the week, strong economic news prompted a mild “taper tantrum” as investors fretted over the Fed possibly reducing its bond buying program as early as December, but that possibility didn’t seem to phase investors on Friday.

Other positive economic reports on the week were Q3 GDP which registered 3.6% growth and beat expectations, and November ISM which jumped to 57.3, up from 56.4 last month, also exceeding expectations.  November Markit PMI was 54.7, up from October’s 51.8, and University of Michigan’s December sentiment index rose sharply.

On the shady side of the street, major U.S. indexes put in a volatile week with five straight days of declines and market sentiment remains at dangerously excessive bullish levels.  October factory orders declined and November services ISM fell from last month’s levels and missed expectations.

Next week brings pivotal fiscal policy action as the December 13th deadline for completion of the budget negotiations looms larger on the calendar. Economic news includes a big day on Thursday with weekly jobless claims and November retail sales.

Finally, more eyes will focus on the following week’s Federal Reserve meeting scheduled for December 17-18 and the Chairman’s press conference at its conclusion.

Bottom line: Good news was good news on Friday and next week will be another test of that theory as economic reports and budget negotiations lead up to the all important December meeting of the Federal Reserve.