Inside Markets — Moving the Goal Post

The SPX managed to close above the 5396-5650 resistance zone on Friday. A sustained close above the upper bound today would be a bullish development, but there is another hurdle overhead in the 5750-5785 zone that keeps the near-term technical outlook unsettled. We are moving the goal post out to this range, which includes the late-March rebound high, 200-day moving average and more importantly, the 3% error band around the 52-week VWAP for the SPY (SPX ETF).

Hard US economic data (jobs and retail sales) are likely to reflect a loss of momentum once the effects of front-loading have worked through normal associated lags. Friday’s Jobs report was objectively strong/bullish with healthy job creation reflected in both surveys, an increase in the participation rate and cooling wage growth. Weekly jobless claims are a high-frequency labor market indicator with last week’s number coming in above consensus at ~240,000. In our view, two consecutive weeks of jobless claims >260,000 is a sign of labor market deterioration. Of course, equity markets don’t always track with a loss of economic momentum, especially when there is a perception that ‘things are getting better.’ On April 3, we estimated that late-May/early-June would be the period when markets weigh framework trade agreements against the expected loss of economic momentum.