Chart: QQQ 1-year daily

The HCM-BuyLine® has firmed up substantially after last week when Fed Chair Powell made some dovish comments which sent the market into rally mode. The market has gone from oversold to overbought in a week and a half. QQQ, the ETF which is tech heavy, is now pushing up against resistance, and a pullback could happen in the next few days. If the market can hold, and the QQQs can break above the $371-$372 area with some conviction, this would be a positive move for the bulls to be back in control.

The breadth of the market has been much better than it was in recent months. Small-caps made a strong move higher after being negative for the year, which is an indication that the market is trying to spread out. This year has been all about the magnificent 7 stocks.


Chart: SPX 3-year daily

The S&P 500 came down and touched its longer-term trend line and held, which is also a positive development. Yet even with last week’s rally, we still have some concerns. Could it have been new buyers coming back into the market taking positions, or possibly a short covering rally that will start to fade?

There were clear and abundant signs of slowing in the labor market in October. Nonfarm payrolls increased by 150,000, below expectations of 170,000 and our estimate of 190,000. Additionally, the prior two months were revised down by a total of 101,000. From the initial release to the final revision, payrolls have been revised lower in 7 of the past 8 months. Nearly all of the jobs came from the non-cyclical private education and health services and government sectors. The average workweek dropped back to 34.3 hours. The unemployment rate ticked up to 3.9% from 3.8%, matching our forecast, but above the consensus of unchanged. Only the y/y change in average hourly earnings grew faster than expected, but still slowed to 4.1% from an upwardly revised 4.3%. The cooling in the labor markets justifies the Fed remaining on hold and makes additional tightening unwarranted. The cumulative impact of prior rate hikes are finally starting to show up in the data.

Long-term interest rates have made a meaningful move lower as the 10-year broke down from the prior range, and at 4.674% is off the 5% level of a week ago. This is progress but a move below 4.5% would be more convincing.