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Saturday, September 8, 2007

Chart action: Jobs data changes everything

Last week I wrote that the daily charts of the major averages were beginning to show potential inverse head-and-shoulder patterns. That would typically be a strong bullish signal in the world of technical stock analysis. I also wrote that the weekly charts were less conclusive and we would need to see the averages move decisively above the necklines of the patterns to confirm the new bullish trend.

Tuesday the markets did indeed move up but Friday saw a plunge that left all the averages below the previous week's levels.

Now it looks like we will once again test the support of the 200-day moving averages while investors gauge the strength of the Goldilocks economy and wait for the expected rate cut when the Fed meets on September 18.

The word "recession" is starting to show up in blogs and news articles now. It wasn't so long ago we had upward revisions in GDP, mild reads on inflation and a feeling markets were stabilizing. Was the jobs data really so bad? Was it unexpected? Let's look at some charts from the Bureau of Labor Statistics.

The chart below shows unemployment in the Construction Industry. It is a surprise that it shows unemployment falling so much after hitting a peak over the winter. Note, however, that the level of unemployment isn't that much higher that at this time last year. No recession indication here.

Construction Industry UnemploymentThe next chart shows unemployment in the Financial Industry. Perhaps this is why the markets sold off so strongly. Economic weakness is hitting Wall Street where it lives as unemployment spiked to levels not seen since 2004.

Financial Industry UnemploymentThe next chart shows unemployment in Manufacturing. Whenever the US loses manufacturing jobs it is certainly troubling. This chart, however, shows more of a reversion to the trend established over the previous years that is a result of manufacturing moving overseas.

Manufacturing Industry UnemploymentIn conclusion, my take on the jobs picture is that it wasn't pretty but it doesn't indicate the economy is about to collapse. In terms of stock prices, the reaction may have been overdone but now the charts look terrible again and the outlook for the markets is again uncertain.

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