Global Macro: World Equities Await Friday's Nonfarm Payrolls

NEW YORK (TheStreet) -- The market has continued its pullback into Friday's Nonfarm Payrolls report, and it looks as if volatility is closing in on its tipping point.

ADP employment data on Wednesday showed that the economy had added fewer jobs than economists hoped, and furthers the evidence that the labor market is not stable enough to exist on its own yet.

Financial markets continue to oscillate heavily, because investors see the continued mixed bag of economic results and fear a life without stimulus. However, it does not seem as though stimulus will be pulled off the table in the near term. The markets may be discounting too heavily at this point, but that is essentially what a correction is.

The price action in the charts below reiterates the point that markets were in need of a correction, and this is nothing short of that. Intermediate trends have not broken down just yet, so it is safe to say that dips in the market provide excellent buying opportunities.

The chart below is of Guggenheim S&P Equal Weight ETF ( RSP) over SPDR S&P 500 ( SPY). This pair measures market breadth or the amount of participation in equity movements. As the pair moves higher, a bullish indicator, it signals that a majority of the S&P 500 is participating in the trend.

The pair below highlights a pullback into the sideways trend. There is no concern yet, possibly just an overshooting of the upper support line. If the pair continues lower after Friday, then there may be a rise of fear that equity investors are moving to the sidelines.

The next pair is of PowerShares DB US Dollar Index Bullish ( UUP) over CurrencyShares Japanese Yen Trust ( FXY). Japan has implemented large-scale monetary stimulus, which has accounted for the vast weakness of the yen. After breaking out earlier in the year, the pair has increased at an exponential rate.

As of this past week, the price action has shown a strong pullback towards the uptrend line. Heightened volatility in global financial markets has been the culprit of such a move. The yen is a safe-haven currency, and although currency weakening is taking place in the region, investors prefer holding yen to the other more unstable currencies.

Uncertainty over the future value of the dollar also has played a role in this pairs' movements. The dollar could see a spike higher or lower depending on the Nonfarm Payrolls data on Friday. This is not to say that U.S. monetary policy will be shifted based solely on the number, but investors will make more of the number than is probably justified.

The final pair looks at Maxis Nikkei 225 Index Fund ( NKY) over Vanguard Total World Stock ETF ( VT). As the yen strengthens, the corollary is a fall in the Nikkei index. Global equities have taken a hit with the increased volatility in world markets. Investors are looking to hedge downside or just get to the sidelines.

On Wednesday, in U.S. markets, there was a large block purchased of Materials Select Sector SPDR ( XLB) put options. This signals that cyclical sectors in the U.S. and worldwide are cautious over economic strength, and with caution comes selling.

The Nikkei has fallen to its relative uptrend line, but does not look to have considerably broken support. As long as the pair can resume strength in the near term, investors will continue to view Japanese equities with a favorable sentiment.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.

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