Yesterday, Fed Chairman Powell sounded an optimistic tone on the economy — on the labor market in particular. Today’s jobs and hourly wage numbers came in shy of expectations, which some would say inspired the early 140+ point rise in the Dow. If that’s the case, traders quickly woke up to the fact that while the numbers missed expectations, they were anything but weak, and, therefore, they offered virtually no incentive for the Fed to not hike a quarter point week after next.
Another narrative on this morning’s bounce was a brief comment from the President that talks with China are going well, along with optimistic utterances out of China as well. If that’s the case, traders quickly woke up to the fact that there’s a bit of a battle presently going on amongst China’s policymakers over the untimely Canadian arrest, at the behest of American officials, of Chinese tech giant Huawei’s Chief Financial Officer. Some are screaming for a strong rebuke on the trade war front (risking an abrupt end to the nascent truce), others are calling for calm and for keeping the two issues separate.
Underneath it all, this week’s data has done virtually nothing to suggest that the U.S. economy is anywhere near spiraling into the next recession, quite the opposite in fact. So that’s good. Plus, I’m seeing a technical setup that suggests that the worst of the correction just might (and I do mean “might”) be over.
Note the present bullish divergences in both the MACD and relative strength lines (momentum indicators) under the S&P 500 one-year chart,, and note how they looked during the correction earlier this year (not bullish):
Here’s how they looked at the bottom of the early 2016 correction (worst start to a year ever):
And here’s how they looked at the bottom of 2011’s whopping 19% correction:
Clearly, things look promising under the surface. However, having said, and illustrated, that, given the present geopolitical state of affairs, if there was ever a time for such a bullish technical setup to fail, this could be it.