• The DJIA closes at an all-time record as markets price in a new easing cycle.
  • A 127.2% Fibo extension targets the 28500s on the upside. 

U.S. stocks ended earlier today and higher with record closes ahead of the 4th July holiday and the Nonfarm Payrolls showdown coming up on Friday where another let down could well force the Federal Reserve into submission. Investors indeed have started to factor in a new easing cycle which has seen U.S. benchmarks rising and ending the day with record closes. The Dow Jones Industrial Average, DJIA, climbed 179.32 points, or 0.7%, to 26,966, the first record close since last year while the S&P rose 22.81 points, or 0.8% to 2,995.82 and made its third record close. The Nasdaq Composite index finished at an all-time high as well, adding 61.14 points, or 0.8%, ending at 8,170.23. 

US economy is slowing and could force the hand of the Federal Reserve

Data on Wednesday was seen as a potential prelude to Friday's Nonfarm Payrolls, which, if it comes in as a disappointment, will be critical in the Federal Open Market's Committee's meeting in deciding as to whether to cut interest rates this month. Today's  ADP report estimated that the U.S. private sector added 102,000 new jobs in June, below the 140,000 expected. However, it came in above the 41,000 jobs created in May, so although there are some signs of slowing, the Federal Reserve could well remain content on monitoring data such as this a little while longer before pulling the trigger. In other data, eyes were on the services sector reflected which also arrived on the soft side.  The Institute for Supply Management’s nonmanufacturing index dropped in June to 55.1%, from 56.9% in May, which was below expectations but was the lowest reading in about two years. the Markit’s services PMI was little better, moving up to 51.5 in June from a 39-month low of 50.9 in May.

US Non-Farm Payrolls Preview: Three is not the charm

On Friday, when U.S trader return from the 4th July holidays, the focus will be on The Bureau of Labor Statistics (BLS) a division of the US Labor Department that will issue its Employment Situation Report for June on Friday, July 5th, at 8:30 am EDT, 12:30 pm GMT. The data are expected to rise 160,000 in June following a 75,000 gain in May. 

"The appearance of two very weak payroll reports coupled with similar poor numbers from ADP would seem to indicate that more than statistical chance is at work.  Economic growth has shifted lower in the second quarter. The US/China trade dispute, the source of so much business angst does not seem to be headed for resolution anytime soon.  In fact given the situation, it would be remarkable if there was no impact on the labor market."

- Joseph Trevisani, Senior analyst at FXStreet argued.

DJIA levels

The index is consolidating in the longer term picture, just as it did back throughout 1999 and 2000 before the markets crashed and turned lower back towards the 1998's lows. However, it did not take too long for the index to rally again on a four-year bull cycle, before the next boom and bust during the financial crisis of 2007 which exceeded the bust of prior years, plummeting to the lowest levels for 13 years. The 2015 bust wiped off around 3,000 points from the index until Feb' of 2016 from when the current bull cycle started all the way down 15503 today's 26966 highs. However, one of the technical charting difference about this consolidation, on a chart pattern basis, is that the prior busts turned out to be bullish continuation flags, or, reversals following a considerable period spent in a downside channel on the monthly chart.

This time around, the chart pattern is undefined, but arguably it could be considered to be the beginnings of a bearish wedge formation, discounting the rout that took place at the end of last year, albeit, not entirely, considering that the markets have already shown a bearish tendency on the first signs of the Federal Reserve's previous tightening bias. The 24800 is a clearer level to the downside. However, the onward projections are not see defined for there is nothing to go from, other than a 127.2% Fibo extension targets the 28500s on the upside. 

 

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