Stocks and gold rally on weak data – They can’t both be right.

February 10, 2014

Volatility isn’t always downside even though the VIX has fallen with the rally back in stocks over the past few trading days.

We saw this truth on Friday again and it shows why using options is such a powerful way of staying in the game when things get hairy and move around the way they have been recently.

So in what you might call an interesting night, Friday saw non-farm payrolls missed by a mile with a print of just +113,000 against an expectation by the market of 185,000. There was some positives for the market to cling to as private payrolls grew by 142,000 and the unemployment rate fell to a five year low of 6.6% which seems to be what the market focused on with the hope of a growth pick up in coming months seeming to drive buyers of stocks.

But as I highlighted this morning at Business Insider the data is printing poorly for the G10 at the moment which should be a concern for traders.

So markets don’t care about the economy and stocks have roared back from the weakness of early last week with the Dow up 165 points or 1.06%, Friday, the Nasdaq rose 1.70% and the S&P 500 rose 24 points or 1.33% to 1,797. Incredibly after last week’s early sell off that puts all three indices up 0.6%, 0.5% and 0.8% on the week.

European stocks ended higher although the release of the weak payrolls data caused some ructions with big falls and recoveries – almost instantaneously – on European Bourses. At the close the FTSE was 0.21% higher, the DAX rose 0.49%while the CAC was up 0.95%. In Madrid and Milan stocks rose 0.96% and 1.08 respectively.

On the Sydney Futures Exchange the SPI 200 March Contract rose 37 points to 5158 bid.

What a recovery last week in the ASX and the S&P 500 – while both have roared back well the local market (in MT4 terms) needs to push through 5175 while the S&P 500 will drag it higher if it gets through 1800.

Looking at the ASX the recovery is not so clear cut but if the S&P keeps going the recovery will continue.

On global FX markets, markets moved around a little with the weakness in the US dollar belying the strength in stocks – the two divergent moves are simply not consistent in a macro sense. This morning the Euro sits back above 1.36 at 1.3629, GBP is above 1.64 again at 1.6408 while USDJPY is trying to break up through ab old uptrend and sits at 102.39 in very early Sydney trade. The Aussie sits at 0.8950/60 this morning and will move with the US dollar, NAB Business Survey, House prices and Consumer Confidence until the employment data on Thursday gives some clarity to where the economy really is.

On commodity markets Gold rallied almost 6 dollars to $1267.30 oz and I’m giving the rally the benefit of the doubt for the moment.

Gold – giving the uptrend the benefit of the doubt

I’m still long gold and while I won’t get uber bullish unless we see it trade above the recent high and the $1280 level it is looking “constructive”.

As you can see in this daily chart Gold is trying to push higher and while above $1245 in the short term the bias is still higher.

The weekly charts give the bulls much more hope than the dailies with targets of $1325 and $1360 after $1280 breaks – assuming it does.

Crude roared higher to $100.14 for a gain of more than 2% and closing in on a 5 month high. Copper rallied again to $3.28 lb coming back strongly from last week’s sell off while the Ags were mixed with Corn up 0.28%, wheat fell 0.56% and Soybeans rose 0.43%.

On the data front there is nothing of great note domestically but Chinese new loans might be of interest and the EU Investor Confidence survey tonight is the only other highlight.

Have a great day and good hunting

Greg

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