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The Commodities Corner

Dow Futures Take a Hit on Bad Economic Data

Fri, Sep 5 2008, 14:33 GMT
by Andrei Pehar

fxKnight.com

Today's employment data showed a loss of 84,000 jobs, an increase of 11,000 over last month.  This marks the 8th consecutive month of job losses in a row, not a good sign for the US economy.  The unemployment rate rose to 6.1%, a five-year high.

This news comes right on the back of yesterdays less-than-optimistic numbers:
http://www.fxstreet.com/fundamental/market-view/global-news-fundamentals/2008-09-04.html

The result sent Dow future tumbling another 100 points, following yesterday's decline of 344.65 points.  More importantly, the decline broke a key support level at 11363, which had been holding the bottom of the range on the Dow since mid-July. 
 
The next test for the Dow will be support at 10,814 - and what happens there may well determine the direction for the rest of 2008.  Either we will continue to range between 10,814 and 11,363, or if we fall below that level we could see a big drop down below the 10,000 mark to 9926, with support on the way at 10,396 and  and 10,186.

Of greatest concern is perhaps the fact that the two factors which were support to prevent a US recession (cheaper oil and a stronger US Dollar) are both here, and the Dow continues to fall despite of them.

On the positive side, if in the short-to-medium term we can get and stay above 11,363, perhaps due to some positive surprises in 3rd-quarter corporate earnings, then the potential increases for targets at 11,702, 11,977 and perhaps even as high as 12,251.  If PMI and productivity numbers can sustain their positivity, then there is a slight possibility that this scenario may yet come to pass.

Published on  Fri, Sep 5 2008, 14:58 GMT