A strong gain after Friday’s jobs report failed to reverse four days of losses, and stocks were unable to deliver their ninth consecutive weekly gain.

A Pullback Continues to be Likely
After eight weeks of consecutive gains, SPDR S&P 500 ETF (NYSE: SPY) closed down 0.03% last week. The only up day was Friday, when SPY gained 1.12% after unemployment fell.#-ad_banner-#​

Traders’ reaction to the good jobs report is a little puzzling. The Federal Reserve originally said it would start tapering when unemployment fell to 7%, the level reached in the latest report. In addition to the drop in the headline number, the economy created more jobs than expected. A strong employment report could allow the Fed to begin tapering soon, and traders have sold on concerns about potential tapering in the past.

The unemployment report is confirming a number of other data series that point to a stronger economy. Average hourly earnings increased and are now up 2.03% when compared to a year ago, higher than the rate of inflation. The number of people in the labor force also rose in November. The employment-population ratio became a concern recently when the number of people leaving the labor force rose in recent months.

Traders could be looking at the long term, and Friday’s gain might have been due to news on income or the improvements in employment. More likely, the market bounced because it had become oversold. The 2-day Relative Strength Index (RSI) was below 2.0 heading into Friday’s trading.

In the past 10 years, SPY moved up 70.4% of the time on the day after RSI(2) fell that low. This is significantly better than average. On a typical day, there has been a 55% chance that SPY will close higher over that time.

After becoming deeply oversold, SPY is likely to move back to an oversold extreme before there is significant downside. Before the September sell-off, RSI(2) topped 98. To reach that level now, SPY would need to close above $192, a potential gain of about 6% from Friday’s close.

For now, I expect any pullback in stocks to be minor, but of course, that opinion will be updated as the price action provides more data to analyze.

Gold Futures Show Possible Bottom
SPDR Gold Shares (NYSE: GLD) lost 1.78% last week, but a futures trading system with a 50-year history gives gold bugs room for optimism.

In the 1960s, a money manager named Richard Donchian published a simple commodities trading system. Buy signals were given when prices reached a new 20-day high, and sells were made at new 20-day lows.

These highs and lows are added to price charts and referred to as Donchian channels. Conservative traders can exit when prices cross the 10-day moving average. More aggressive traders often stick with trades until a reversal signal is given and are always in the market.

This system has been profitable over the long term and can be used with futures or ETFs that track commodities like GLD. Last week, the system gave a signal to exit a short position in gold.

This is not a buy signal, and there could be more downside for GLD, but Moving Average Convergence/Divergence (MACD) is also nearing a buy signal. Weekly MACD buy signals in gold have also been profitable over the long run. Gold is not on a MACD buy signal yet, but it is close, and MACD has been improving over the past few weeks.

This article originally appeared on ProfitableTrading.com:
Market Outlook: Stocks Still Overbought, but Gold Could be Bottoming