Major averages fell again but on lower volume with the S&P 500 bouncing off its 200dma. The majors managed to claw back part of their losses to close in the upper half of their trading ranges. Nevertheless, both the Dow Jones Industrials and Russell 2000 are below their 200dmas while the NASDAQ Composite and S&P 500 are under their 50dmas. Commodities continue to skate on thin ice as many are approaching or are at multi-year lows.
Each time the NASDAQ Composite has traded under its 50dma this year, a floor has been found within 2 weeks or less with corrections typically between 4-5%. That said, this is the first time this year both the Dow and Russell 2000 are under their 200dmas, thus technical conditions have worsened.
The inability of the major markets to advance in consistent fashion is a sign that, for the first time since 2009, QE is not pushing the markets higher. The bulls would say this is due to the markets, which are forward looking by typically 4 to 6 months, telegraphing a rate hike which, historically, has been a bullish event though has resulted in a correction of some magnitude 4 to 6 months ahead of the first rate hike. The bears, on the other hand, would say it could mean more serious trouble ahead given the unprecedented situation in which the world finds itself. Whatever the reason, staying in the present, watching the markets and your stocks, is key.
The unemployment report came somewhat in line with expectations, though average hourly earnings climbed less than expected and the labor participation rate remained at depressing levels not seen since the late 1970s. Still, futures are showing a 60% chance of a rate hike when the Fed meets in December.
Nevertheless, the Federal Reserve is concerned about low inflation and won't hike rates until it sees inflation return to more normal levels, according to Stanley Fischer, the vice chairman of the US central bank.
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