Last Friday's NFP report once again surpassed expectations, maintaining an impressive streak of 14 consecutive beats on the headline number. However, a closer examination of the report's specifics reveals a less remarkable picture. The unemployment rate experienced a significant jump from 3.4% to 3.7%, representing the largest month-over-month increase since the beginning of the pandemic. Additionally, there was a slight decline in average workweek hours, often signalling employers' inclination to reduce hours before implementing layoffs.
Considering all factors, this report offered something to satisfy different perspectives. The optimists drew a positive outlook from the solid job growth, while the higher unemployment rate and soft average hourly earnings suggested a decrease in labour market tightness, potentially easing inflationary pressures. Some participants may interpret the lower average weekly hours worked as a reversion to the pre-pandemic trend.
On the contrary, the pessimists focused more on the report's details rather than the headline number, recognizing that the trend holds greater significance than the absolute figure.
Dow Jones Technical Analysis – Daily Timeframe
On the daily chart, after bouncing from the key 32684 support, the Dow Jones broke above the downward trendline and extended the rally towards the swing high at the 33850 level. The moving averages are about to cross to the upside, possibly signalling an imminent change in trend. If the buyers manage to maintain the bullish momentum, the resistance at 33477 will be the natural target.
Dow Jones Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price overextended a bit as depicted by the distance from the blue 8 moving average. Generally, in such cases, the price consolidates or pulls back toward the trendline to find a new equilibrium before the next move. This overextension comes right when the Dow Jones is at the swing high resistance at 33854, which should raise the probabilities of a pullback. The sellers are likely to pile in at this swing high resistance with a tight stop just above it to target the 33300 support.
Dow Jones Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that a good spot for new longs for the buyers would be the 33625 level. In fact, we can find the confluence with the 38.2% Fibonacci retracement level, the red 21 moving average and an upward trendline there. If that support zone fails, the buyers are likely to retry at the 33300 level where there’s the confluence of the previous resistance turned support and the broken downward trendline. The sellers, on the other hand, will pile in at every downside breakout.
The market today is likely to focus on the US ISM Services PMI report:
- Given the impressive performance of the S&P Global Services PMI in the previous month, there may be an anticipation for a favourable outcome in the ISM report. If the data surpasses expectations, especially if the prices paid sub-index indicates a lower value, we could witness a rally in the Russell 2000 as market participants would expect a soft landing scenario.
- Conversely, if the data disappoints expectations, it could trigger market weakness, potentially leading to the above-mentioned pullback or even a complete reversal.
