Friday's Market Action May Tell If Rally Will Continue

Stock market technical indicators -- combined with an overall shift in some recent economic factors -- look a bit better and have created a bullish tone, at least short term. It’s a fairly equal balance, and case can be made for the market to begin to break out and move higher from here.

Friday is a key pivotal day, with the widely watched unemployment rate, nonfarm payroll and average hours worked. Consumer credit data also will be announced, and although showing improvement in terms of increased savings and unwinding debt, usually is a non market moving event.

Friday’s activity will probably determine if the rubber hits the road, so to speak. An important area to us relates to the quality and strength of institutional participation.

The employment report announcement on Friday has been widely expected to disappoint. The U.S. Labor Department’s closely watched reported shows that payrolls in July declined by a greater-than-expected 131,000, after dropping 125,000 a month earlier. The rate of unemployment rate held steady at a seasonally adjusted 9.5 percent. Economists had expected a drop in payrolls of 60,000, with the unemployment rate slightly higher at 9.6 percent.

There may be a few positive aspects to the dire employment situation. For one, other data suggest that the unemployment picture is shifting. Better skilled, talented professionals may be moving upstream to better jobs thereby creating a vacuum of jobs beneath it to get filled.

Stocks appeared set to slide in response to the early data. We’ll wait to see the market reaction before increasing our exposure. However we are poised to become more aggressive depending on the reaction.

The last hour of trading Friday could prove important to keep an eye on. If the market is listless and doesn’t react much, then individual stock picking is paramount -- especially if the rally continues to float on light volume. We will post a more detailed journal after a couple more days of observing the market structure and technical development. There are some remaining overhead issues the market faces in order to move much higher from here.

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