Friday's employment data produced some rather confusing information for traders to digest. The Treasury market celebrated the data with a substantial rally which brought the yield on the ten year note back to the 5% level, and, the overall reaction to the weaker than expected job growth figure was seen as positive for equities in that it may ameliorate inflationary concerns that preoccupied the FOMC at its last meeting.
The S&P 500 has rallied back to an area of potential resistance and we have learned not to take the initial reaction to the monthly employment data too seriously as it often undergoes considerable second guessing in subsequent sessions.
The Russell 2000 (^RUT) closed Friday's session just below 740 and the Spinning Top formation suggests that we may seem some consolidation around this level before the next directional move becomes clear.
The Dow Jones Industrials’ proxy DIA is poised at the juncture of the 20 and 50 day EMA’s and we are tempted to construe the recent reaction as a relief pullback from May’s sharp bout of selling, especially as the volume on the rebound has been quite subdued.
Yields across the board on government bonds moved significantly downwards on Friday as the employment data appears to have pleased the Treasury market. The ten year note fell back to the five percent level which also coincides with the 50 day EMA, and, if this move was to continue in earnest we may see some re-thinking amongst fund managers. However, we suspect that it will take more than one employment report to alleviate the concerns that have been mounting amongst asset allocators over the last few weeks.
TRADE OPPORTUNITIES/SETUPS FOR MONDAY JUNE 5, 2006
The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions. None of these setups should be seen as specifically opportune for the current trading session.
In Friday's commentary we pointed to the bullish pattern on the chart for Walgreen (WAG) and the stock cooperated in a very timely fashion with a five percent upward move on the day. Another of Friday's recommendations BOL also obliged with a four percent gain.
Alcoa (AA) looks vulnerable to further selling out of a recovery/bearish flag formation that has entered a zone of potential resistance where two EMA's have converged.
EBAY has a constructive pattern that suggests that there could be further interest on the long side to complement the upward gap move on heavy volume that took place on May 25th.
MMM recorded a tiny Doji candlestick candlestick on Friday and could be ready to stall out at a lower high. If the employment figures are pointing to a softening economy, or, at least, if that's the way that traders decide to interpet the data in the near term, this stock is in a sector that may come under some pressure.
Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.
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