Jobs Report Friday: Time to Love the Miners?

Another Friday, another Jobs report showing 200K+ jobs created. Doesn’t this ever get old for anyone else? While December’s gain of 252K was a drop from the revised 351K in November, the big jump in construction related employment along with the fall in the headline unemployment rate from 5.8% to 5.6% was sure to give some more levitation to equity futures. The overnight weakness was wiped out at the report’s release although since then, the anxiety has begun to creep back into the market.

After all, the first question being asked on every trading desk is whether this is a “good” report that could signal changes in rate expectations or a “really good” report that could give the Fed the ammo it needs to keep rates low indefinitely. Wage growth on a year-over-year basis was an anemic 1.7% while average hourly earnings fell .2% bringing the average weekly earnings for all employees down slightly in December. Not exactly the sort of awe inspiring economic growth you want to see going into a rising rate environment which has all of the financial interwebs aflutter; will rates start rising this summer?

The unemployment rate has dropped to a level that most people would consider being “average” despite the drop in the participation rate and typically would see the potential for rising rates, especially after the 3Q GDP report although 4Q is sure to come in a lot lower with some estimates at half of the prior period. And with the sustained drop in oil prices, the Fed is surely having visions of the 1980’s where a combination of falling oil prices, strong economic growth and a lax Fed saw inflation pushing nearly 5% by 1990. Not that anyone would consider the economy to be growing nearly as strongly as in the 1980’s and with the global economy facing a higher prospect for deflation than inflation, the Fed might decide waiting and seeing is the best approach.

So what does that mean for your portfolio? Probably just more of the same as visions of 2012/2014 come back to haunt the more active market participants. Every economic report will carry more volatility than it did for the same period in 2013 when everything as A-okay! But the Yinzer Analyst checked his charts last night and came up with a few things that he thinks bear watching.

First we’ll start off at home where the S&P 500 seems to be stuck in a rising wedge pattern; while the rally over the last two days was impressive, it only alleviated some of the prior selling pressure and momentum off the 2000 level has been fairly weak. New highs are still possible, but unless we can clear 2100 on strong volume, it’s likely we’ll be coming back down to the 2000 level.

spx

What has been stronger this week are the gold miners, take a look at the daily and weekly charts below:

GDX

GDXW

GDXL

I wrote about this over at ETFG.com earlier this week, but there are any number of reasons why the miners could be doing well but the most important for me is broad equity market weakness. Remember, during the long gold miner bear market of the 80’s and 90’s, the miners typically only made gains when the broader indices ran into trouble.  I did a study on that at my last employer, I can recall the exact specifics but typically when the broader market was going through a cyclical bear cycle, the gold miners outperformed 50% of the time on a monthly basis.  And by outperform, I don’t mean “were less negative” I mean “were positive when the S&P 500 was negative.”  Food for defensive thought.

Staying at home for the moment, the weakness following the Jobs Report has hit the energy sector hard this morning as XLE doesn’t seem like to soon challenge the weekly downtrend line. Hopefully it can at least hold on to the 200 week moving average. And while Healthcare stocks may be suffering slightly more than the broader market today, this weekly’s rally left the XLV/SPY relative momentum relationship firmly in the upper half of the uptrend angle. So the take away, when investors are feeling confident (or at least positive if not in a big risk taking way), it’s back to old favorites like healthcare stocks.

XLE weekly

XLV

XLVSPY

Going overseas, its consolidation time in China as ASHR begins to consolidate after breaking through December’s resistance. Normally, over the last six months this would have been a perfect time to add exposure but for now, I’m not so sure. Looking at the weekly chart, we did manage to get above the high of last week but will likely close down on heavier volume. I think a retest of $36 is in order to confirm the bull case.

ASHR

ASHR Weekly

And finally we’ll leave you with European equities where the Yinzer Analyst is extremely glad he advised caution before buying the mid-December rally.  Who say’s technical analysis doesn’t have its uses? EZU has broken below the summer’s downtrend line on a daily basis and doesn’t seem to have the buying pressure necessary to break above it again anytime soon. Until the chatter about a Greek exit from the EU dies down, EZU could be heading for a weekly close back to $34 unless Draghi can pull a seriously fat rabbit out of his hat with European QE.

EZU

EZUweekly

Thanks for stopping by and starting your morning with us!

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