Stocks bounced higher after hitting their 100 day moving average. We mentioned yesterday the significance of this floor of support, and how there has not been a decisive break below the 100 DMA in over two years. The bounce higher shows a level of resilience in the stock market that is unreasonably strong. With well over 1,000 days since the last stock market correction, when we do see a correction, it could be a strong one.
Initial Unemployment Claims for last week were released today, coming in at a strong 289,000. This is well below the market’s anticipated 304,000, and shows continued improvement in the job market. A look back at the last four weeks shows the moving average at the lowest level it has been in the last eight years, at 293,000. Now that we have a trend of stable improvement in weekly unemployment claims, the question is whether this will translate into new jobs being created. The one variable will be the imminent end of the summer seasonal jobs. However, it won’t be long before Christmas hiring is back in play.
The stock market bouncing off the 100 DMA will provide a headwind to the bond market today. In spite of the improving stock market, bonds are still higher today. However, they are nearing the top of a trading channel. With bonds at the top of a channel, stocks pushing higher, and the 10 year treasury note at levels that have proven too difficult to break in the past few weeks, we are going to suggest a locking bias. If the stock market fails to move higher, it may fall back and re-test the 100 DMA. It may take a few attempts before stocks have enough weakness to break below this level. Keep your eyes on the markets, and watch and see if stocks continue to climb or if they break down and retest support.