As we expected and shared with you in our weekly update last week, the US stock market rebounded and ended the week in positive territory.
The DJIA closed on Friday at 25,271; up 2.4% from last week’s close, as did the S&P500 (+2.4% at 2,723). The Nasdaq closed at 7,357 (+2.6%).
The jobs report published on Friday showed, once again, the strength of the US economy, which created 250k jobs, beating estimates and confirming the unemployment rate at 3.7%: an outstanding performance indeed.
Moreover, we were helped by a strong rise in wages – which has been sluggish despite low unemployment – with average hourly earnings jumping 3.2%.
October was a challenging month for stock investors (at least those investing in long-only portfolios); the worst since 2011. We are 7.5% below the all-time highs marked earlier this year and volatility, as we have remarked many times, is here to stay and is there for us to take advantage of.
Let’s have a look at the S&P500:
The bounce off the lows materialized as expected and the divergence on the indicators was confirmed, at least in the short term. The upward movement extended to once again touch the 200-day SMA, taking out our stop profit and setting our position flat on this index.
The 200-day simple moving average rejected the pullback and prices are now testing the dynamic support they regained last week. The situation is not clear at the moment and a short should only be opened if prices drop below 2,690 again.
I would still be wary of opening long positions as the SMA has clearly flattened.
As we are heading towards the end of the year and pressure to end the year on a positive note will raise for institutional investors, we should analyse the situation from an intermarket perspective, taking into consideration what is happening on an asset that is considered a safe haven, and pushes higher when investors are seeking to reduce their risk on the stock market: gold.
