Dow still on track after data

The payrolls outcome doesn't stand in the way of fresh highs

As often the case, markets coalesced around inflection points ahead of Friday’s major risk event, U.S. monthly employment data. The typical interpretation is that sentiment had reached a pivotal level beyond which fundamental confirmation was required to venture.

With data strong in places and weak in others (payrolls at 196,000 vs. 180,000 expected; March earnings growth soft) reaction was muted. Nevertheless, with February’s weak headline revised only slightly higher, from a market view, risk considerations barely changed. The data largely vindicate the Federal Reserve’s “patient” stance. Elsewhere, news emanating from U.S.-Sino trade talks remains promising, if uncertain.

The main challenge for stock markets then, after many reached new highs for the year this week, is whether sufficient impetus remains to extend gains in the near term. The watch is similar for Dow futures, which set a top of 26966 in October. The weekly chart illuminates the likelihood of significant support now that price has passed heavyweight challenges:

• 61.8% and 78.6% retracements of the October to end-December fall
• 26268 resistance from an unmistakeable long-legged ‘indecision’ doji on 8th November
• 25246-25251 double bottom

To be clear, whilst the Dow’s uptrend is not in question, it is technically weakened by persistent lack of precision. Overbought readings from momentum oscillators also aren’t playing ball.

That said, the channel forming since late March is increasingly validated in close-up. Even though it may not last, a reasonably early warning that the current rising leg is in doubt is likely. A sustained break below the lower rising line and neutralisation of 26282 would be required for alarm bells about the upside to sound.