Stock Indexes, Jobs Data, and Algorithms

• All three major US stock indexes have been in long-term downtrends on their monthly charts since this past January. 
• Though these trends projected a possible turn date of June 2023, the end of October saw all three post some sort of bullish technical reversal pattern. 
• That being said, the Nasdaq still looks to be the most vulnerable to its October low failing during November. 

With everything else that has gone on this week, Friday saw the release of October’s US nonfarm payrolls and unemployment rates. For the record, nonfarm payroll came in at 261,000 as compared to an expected (reportedly) 205,000 and last month’s 315,000. Meanwhile, the unemployment rate at the end of last month was supposedly 3.7% as compared to an expected 3.5% and the previous month’s 3.5%. To top off the monthly data dump, labor force participation was 82.5% versus the end of September 82.7% . Lisa Abramowicz of Bloomberg had the best summary I’ve seen when she posted, “There are confusing jobs numbers…But the takeaway is that the labor market is still hot…”. Shortly after all this occurred, I received a message that read, “The algos on equities reveal total confusion”. Here, though, I had to disagree with my friend. 

As I was talking about for much of October, all three of the major US stock indexes were in position to post bullish reversal patterns on their long-term monthly charts. When the closing bell rang Halloween Day (October 31) the S&P 500 ($INX) and Nasdaq ($NASX) had both completed bullish spike reversals while the Dow Jones Industrial Average ($DOWI) completed a bullish key reversal. Let’s quickly recap the different types of reversals I look for: 

• Spike Reversal: Indexes went to new lows for the previous major downtrend before closing lower. Not the most reliable of reversal patterns. Often followed by an immediate retracement to test the low. 
• 2-Month Reversal: Here the key characteristic is the previous month’s close near that month’s low followed by a higher close the next month near the monthly high. Also, often followed by a quick retracement. 
• Key Reversal: Both the previous month’s highs and lows are taken out with the market closing higher for the month (some argue a close above the previous month’s high is necessary, but I don’t). Generally, a reliable reversal pattern.
• New 4-month High (low): This is straight forward, just as the name says with a reversal completed when a market hits a new 4-month high. These are reliable, but often take a while to build. 

Based on what we saw at the end of October, it is not surprising all three indexes have come under pressure the first few days of November. But it doesn’t change the technical reading each have moved into new long-term uptrends. But what about shorter-term trends?

• S&P 500 intermediate-term trend is also in a 5-wave uptrend but moving into a Wave 2 selloff. The downside target is near 3,576.00. The S&P 500 is also in a short-term downtrend, also with a target near 3,576.00.
• Nasdaq is in an intermediate-term uptrend, though here the concern is the index could blow through its target of 10,316 and possible the October low of 10,092.94. That would make things interesting on its long-term monthly chart. 
• DJIA is showing similar patterns with its intermediate-term trend looking to be in a Wave 2 selloff. Here the downside target is at 29,543. 

The bottom line is while there is a great deal of conflicting data to be found in government numbers (as always), trading algos continue to generally follow technical patterns. We’ll see how long this lasts. 

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