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October 4, 2015
By Keith Schneider
The wild market gyrations continued and all key US indexes managed to close positive by 1% for the week. It was a struggle however, as the initial reaction to a weak September jobs report Friday morning along with a downward revision for the August Jobs spooked the market.
The market opened down almost 1.5% before embarking on a remarkable recovery by moving up almost 3% from the lows. Bonds took off as well on the news before giving up most of their daily gains. Bonds however, had a strong week.
Depending how one is predisposed to looking at the data, the jobs report certainly looked disappointing and the August revision not so pretty either. However those jobs numbers are highly volatile and two months does not a trend make.
So by smoothing the data over the recent 12 months, the jobs recovery still seems underway with unemployment levels hovering around 5%.
If you take a look at inflation and decided not to eat, heat your house or drive your car, then the core inflation rate, as measured by the CPI, is hugging along at 1.8%, just shy of the Feds ideal target rate of 2 %. Autos and consumer confidence remain strong.
The controversial (recently released from jail) head of Armstrong Analytics, Martin Armstrong and developer of the Economic Confidence Model uncannily predicted the 1987 market crash (and many other important market turns according to a Barron’s article back in 2011) to the day.
Using a formula that includes the use of Pi to forecast the ebbs and flows of economic cycles and markets, Armstrong says the current top in our economic cycle is in and peaked October 1. He actually published these forecasts and turning points years ago.
Legendary investor Carl Icahn weighed in this week also, saying he has hedged his long positions (buy Apple however it’s a great value and please help support his position). He thinks that the Fed missed its opportunity earlier this year to bump rates up. He also states, easy money is distorting corporate earnings numbers, hence the earnings of many stocks are suspect and therefore valuations overblown.
Another concern of Mr. Icahn’s is that short term thinking is driving financial decisions across corporate boardrooms, hurting long term growth prospects and that is something he certainly can comment on with authority.
Let’s not forget an overheated art and collectible vintage car market which are often a harbinger of market tops as well.
Getting back to technicals, the short term oversold technical setup certainly contributed to the massive rally on Friday and it appears that we are in for continued volatility. Despite all the headwinds mentioned above, the powers that be want to keep equity markets steady or up.
Was it the plunge protection team hard at work on Friday or is a more substantial rally brewing? After all, massive rallies materialize when sentiment and technicals are at it ebb.
Interestingly, gold traded higher and the gutted gold miners sector acted well into the close, even after bonds came off sharply from its gap up Friday.
Tensions in the Mid-East are on a boil as Iran, Russia and Hezbollah all team up and look to destabilize the status quo of a region already in chaos.
An old fashioned proxy war is unfolding and will test the wills of the US, Israel, and Saudi Arabia.
As always and especially now, let’s see what the charts are telling us by going to this week’s video.