Jobs jitters?

Stocks were basically flat yesterday as the Dow gained 1-point on the day, but we did see some pockets of weakness in a few indices.

For the TSP, the C-fund lost 0.25% yesterday, the S-fund gave up 0.26, the I-fund added 0.14%, and the F-fund (bonds) lost 0.20%. 

Investors seemed tentative before Friday's important jobs report although the light volume probably had as much to do with the weather across the country as anything else.

The S&P 500 pulled back modestly yesterday, from Tuesday's new highs.  The slow and steady rallies can't last forever and when these rallies do end, there is usually a pick up in volatility.  We probably couldn't ask for a better trend than what we've had, so the recent volatility is a concern because it could be the sign of coming topping action.

The peak last April is a good example as the ascending trend broke about the same time that volatility picked up, and the volatility saw very strong up days along with the down days, so even if though the market is making new highs, we have to watch the volatility for signs that it is no longer a steady trend. 
                         
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The Dow Transports continue to lag as they were down nearly 2% yesterday.  You hate to see that from the leader so the bulls would probably like to see that 50-day EMA hold up.  But does it matter?               
                          
                         
                        Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The table below from SentimenTrader.com shows every time since 1928 that the 7-day rate of change in the ratio between the Dow Transports and Dow Industrials fell by at least -5%, with the Dow Industrials having hit a 52-week high sometime during the past week.

           

There was certainly some short-term bearishness for the Dow as the 1 and 2 week returns were lower than random days, but going out further it wasn't really a problem at all, so maybe we don't have to be concerned yet.

We have been patiently watching the recent trading range of the yield on the 10-year T-note for the last few weeks, and we eagerly await the outcome.  I have been expecting it to break out to the upside because of its bullish flag pattern, but you never know.

                         
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

A breakout to the upside would coincide with a decline in bond prices and the F-fund, and more than likely a continued rally in the stock market.

Can the stock market continue this rally?  I think the above chart tells us it can, but the geopolitical events may continue to stimulate volatility and if it worsens we are more likely to see rates drop again (bond and the F-fund up) and a pullback in stocks.

Thanks for reading!  We'll see you tomorrow.

Tom Crowley