Gold, Stocks, Dollar Looking for Direction from Employment Picture

Name: Richard Ilczyszyn Company: Lind-Waldock

Years Trading: Favorite Movie: Wall Street

The big economic highlight of the week, the September employment report, came out Friday at 7:30 a.m. CT and is triggering action in the financial futures markets. It’s also triggering speculation about what the Federal Reserve will do next regarding interest rates. Will we get another rate cut this month at the October 30-31 Federal Open Market Committee meeting, or not? Market participants are looking for the report to help clarify the situation. The Labor Department reported non-farm payrolls rose 110,000 in September, higher than analysts’ expectations of 100,000. August’s figure was revised upward, to a gain of 89,000. The unemployment rate in September rose to one-year high of 4.7 percent.

Prior to the report this morning, market participants were pricing in a rate cut at this month’s policy meeting, but now the picture isn’t so clear. The November CBOT Fed fund futures contract is pricing in odds of less than 50 percent for the rate cut, down from 72 percent Thursday.

The employment report and Fed speculating could also help dictate the next move for two markets that have been on the run lately—stock index futures, and gold. Recall we had a record high in the Dow Jones Industrial Average on Monday, October 1, climbing above 14,000, but it and other major market indexes had stalled in a range in the days following.

S&P 500 Futures
Looking at the daily candlestick chart of the S&P 500 futures, I see a possible bullish pennant formation setting up. The market seems overbought after the big run that was ignited by the September 18 Fed meeting and I’m going to be cautious amid this latest rally. However, technically, this formation shows more upside potential, perhaps even to new yearly highs in the wake of what’s been perceived as a bullish employment report. Watch for a trade above 1561 in the December contract to reignite the rally to new highs. The December contract peaked just above 1578 back on July 19, 2007 and the market looks strong enough to test that level. If we get post-employment report fallout instead, the market could correct back to 1520, the 21-day moving average. Another level to watch on the downside for support is Wednesday’s low at 1546.50.




Dollar, and Gold
Earlier this week, the U.S. dollar reached a record low of $1.4283 per euro, but it seems to be trying to find a bottom and has regained some ground in the past two sessions. If you trade metals, the dollar is very important to watch. Gold is priced in dollars, and moves in the dollar have historically been inverse to gold. Currencies and metals will also be seeking direction from Friday’s employment report, and signs of economic strength may lower expectations for another interest rate cut, which could boost the dollar and undermine gold. However, I am a long-time gold bull and see it more likely that the dollar will remain weak and the price of gold will benefit accordingly. Gold has retraced some of its gains after hitting its highest level since 1980. December COMEX futures peaked at $755.70 on October 1, but ended lower in the two sessions following as the dollar rebounded.

Keep in mind, what goes up must come down, and pullbacks in gold, or any market, are par for the course. Gold could pull back to $700, or even lower, and still be in a bullish trend. I’d recommend using these pullbacks to scale in, but be careful not to get overleveraged when you trade, and piece yourself in. I like to use the 8-day, 21-day and 50-day moving averages as entry and exit points, and buy on breaks. The 8-day moving average currently comes in at $741, the 21-day at $729.90 and the 50-day at $700. Don’t worry about missing out if the market takes off ahead of you--wait for the market to come to your price. I see the potential for gold to move as high as $800 by year-end.

Please feel free to contact me to tailor an individualized trading strategy for your particular needs and risk tolerance, and ask our special half-off commissions offer for new clients.

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About the Author

Richard Ilczyszyn is a Senior Market Strategist with Lind Plus, Lind-Waldock's broker-assisted division. From 2002 to 2004, he was a Chicago Board of Trade member, a licensed floor broker and a proprietary trader on a house account in the DJIA futures pit. He also spent five years as an institutional Treasury Bond Arb desk supervisor at the CBOT. His off-the-floor screen experience includes the DAX, Euro stocks, E-mini S&Ps and 10-Year Treasury notes.

With Lind Plus, Richard integrates technical and fundamental analysis, and his goal is to create a solid trading strategy while remaining flexible enough to capitalize on market opportunities when they arise. By identifying market trends, breakouts, and failures in a timely fashion, Richard tries to position his clients so that they have the opportunity to realize their objectives while effectively managing their risk. Up-to-the minute information and communication are key.

You can reach him at 800-605-0095 or via email at rilczyszyn@lind-waldock.com.