Tuesday, August 31, 2010

Everyone is a Contrarian

This morning was the 3rd time that we bounced off of the 1040 area in less than a week, this bounce has been the weakest and we are already fading.  Isn't there an old maxim that the more times you test support, the weaker it becomes? 

The TA trading funds, HFT bots, and paper napkin chartists are all lined up with buy orders around 1040, but they also have a bunch of stop orders a few points below it.  It would not surprise me to see a stop run down to 1025-1030 in the overnight Globex session or intraday Wednesday. 

Volume Rising

The traditional view on volume is that high volume on up days is good and low volume on down days is bad.  That was completely wrong from July 2009 to May 2010.   The market went up huge on low volume and had high volume short selloffs.

Yesterday, we sold off almost all of Friday's gain on low volume, and today, we are barely able to get back in the green and we're on pace to easily exceed yesterday's volume.  This speaks of a lot of overhead supply on the way up and a lack of support on the way down.  It is the opposite of the July 2009 to May 2010 period.

P.S. - I think this strength will fade as the day goes on and we'll finish in the red.  Expecting another weak close.


The only way I can describe this market is spastic.  The market jumps or dives based on economic data or just because everyone else is buying/selling.  It is a fragile market. 

This is no time to be an aggressive buyer.  I was surprised by yesterday's weakness, but it fits in with my overall belief that we have to test the lower depths before we can have a sustainable uptrend.  I don't believe in this endless trading range that many traders have gotten used to by now.  Just hoping we can get enough of a rally in the next week or so in order to get a good short entry before things collapse.

Monday, August 30, 2010

Light Volume Selloff

This is bearish.  It doesn't take much volume to take down this paper tiger.  Friday was pure short covering and bounce players jumping in declaring the bottom has come.  Globex trade at 1072 is probably the top for this bounce.  The fundamentals are bad and economy is tanking.  Every long should just be very short term trades until we capitulate below 1000 in September. 

Obama Speech

This is one of those things that have no fundamental effect on the stock market but can move the market temporarily for the day.  It must be partly responsible for the selling during the middle of the day, as traders frontrun the speech or lighten up expecting Obama to disappoint.  It is pointless.  This speech means nothing. 

For the Nimble

I think you can buy the ES around 1057-1058 and sell it at 1070 later today or tomorrow morning.  This is not recommended for longer term traders and is a bit risky, dancing between the raindrops.  Short is the side to be on for the next couple of weeks until we bust through 1000.

I'm Out

I'm now flat and will try to go short sometime Tuesday or Wednesday.  It is clear as day that we have more work to do on the downside, although we may have an up day or two.  Normally you don't see an 8 point gap up become a gap down overnight.  That usually means that level, 1072, is close to a near term top. 

The nonfarm payrolls should be another bad number, and expectations of a bad number will cap any upside this week.  I will be leaning short for the next several weeks. 

Saturday, August 28, 2010

Psychology of 1040

You can say we have been range bound since September 2009, when the market first broke through 1040 after the 2008 crash.  Since then, there have only been brief moments in the market when we've traded at or below 1040.  They have all been great buying opportunities.  But since May, those buying opportunities at 1040 have become more frequent, and the market has spent a lot of time below its 200 day moving average.  Both are negative signals for the market. 

This past week, we hit 1040 again, twice, and bounced strongly both times.  Will traders provide support at 1040 again the next time it is hit?  I doubt it.  Anecdotally, a lot of traders seem to be afraid of September, so it makes it harder to game a washout to below 1000.  But the short base seems shallower than in February or May-June.  There will be less short covering support this time around.

Although well advertised, the fundamental backdrop is supportive of a washout.  The daily chart looks bearish to me.  Hedge funds could panic out or go short in a chase for performance if we break 1040 decisively. 

Friday, August 27, 2010

Only 5 Points Lower

If you look at the prices from last Friday's trade, we are only 5 points lower from where we were trading one week ago.  It doesn't feel that way however.  The sentiment has gotten much worse than a 5 point drop would indicate. 

The market doesn't go up or down in a straight line.  From SPX 1130 to 1040, we dropped 90 points in 2 1/2 weeks.   That is a lot of ground that the market has covered.  I expect to see some back and forth trading between ES 1040 and 1080 for the next couple of weeks.  Once we build up some complacency again, we'll be ready to go down some more.  September has a way of bringing out fear flashbacks in the stock market, especially one with memories of 2008 still fresh.

Monday will be light on important economic data so the bulls will have free reign to push up prices, perhaps to 1070 but starting from Tuesday and ending with the feared nonfarm payrolls on Friday, there is a lot of economic data that could be used as an excuse to sell the market.  I expect us to revisit 1040 again next week.

Fear Bottom

That is what a fear bottom looks like.  I don't think it is the ultimate bottom, but we retested the 1040 support zone and bounced again strongly.  The market doesn't want to go lower for the time being, so that means we go sideways or higher. 
I remain long.


A couple of tendencies on Fridays to consider.

1.  You don't see big rallies.  a) Big gap ups are usually good fades.  b) There is a tendency to selloff in the first hour as the fund managers want to de-risk and flatten positions ahead of the weekend. 

2.  You can get big selloffs if it is a fear based environment but the market is not oversold.  Fear based environment now but we are also oversold.

3.  Watch for the late day rally if we are oversold and the market had a first hour selloff but has stabilized during the middle of the day. 

I expect early selling today but the market should stabilize above 1040.

Thursday, August 26, 2010

Sell All Rallies

All rallies till late September are sucker rallies.  This is a much different market than the one we had in May-July.  We are trading based off of news in the US, not in Europe.  This selloff will last longer.  Also, the crowd has been conditioned to buy at 1040 and sell at 1120.  This has happened several times over the past few months.  That is why short term traders are complacent.  Emphasis on short term.  The intermediate term and long term traders are very nervous. 

I believe we will have a last gasp rally next week, perhaps to 1070-1080.  That will be the time to unload longs and reverse to the short side.  In September, I expect a 9 handle on the ES.

Hourly and Daily Timeframe

I have conflicting signals on the hourly and daily charts.  The hourly chart looks bearish, and we should finish near the day's lows today.  On the daily chart, it is bullish, with a washout low at 1040 support yesterday.  I am trading based on the daily chart so I remain bullish on that basis, but I see room for weakness today. 

Low Put/Call Ratio

There is a surprising amount of complacency after 1 up day and an above consensus jobless claims number.  But we are already starting to sell off here and the feeling here is that this downtrend has a long way to go.  I am still long but looking to head for the exits soon. 

Wednesday, August 25, 2010

Domestic and Foreign

The US stock market runs on domestic and foreign influences.  From the brief history of the last 25 years, down moves in the market have been of two main varieties.  The first is domestic.  Domestic sources tend to have a lasting effect on the stock market (1987 crash, 2001-2 dotcom crash, 2008 financial crash).  They are the real deal and are the fuel for a bear market.  Foreign influences are scary but not long lasting (1998 Asian crisis, 2010 PIIGS crisis).  They should usually be faded. 

The interesting aspect about the current weakness in the stock market is that it is different than earlier in the year which was due to the PIIGS crisis in Europe.  It is now domestic weakness which is the catalyst for pain.  This immediately makes me more wary buying the dips on this downleg.  The selloff this time around is due to weakness straight out of the USA.  That will make it much harder to shrug this off than anything coming out of Europe or Asia. 

Lack of Shorts

While traders overall are bearish, it seems that active short selling is lacking in this market.  Unlike in May and June, when shorts were more prevalent, the short base seems to be shallow this time around.  Without a lot of shorts, short covering rallies will be weak.  This converges with my belief that the bounce this time will not have much energy, and 1080-1085 should be a ceiling that will be hard to break. 

I am expecting a small gap up tomorrow after the buyers come in after the jobless claims number. 

1040 Support

We are back near strong support at 1040.  But the action hasn't been that strong today despite the snapback rally off the weak new home sales number.  With jobless claims coming tomorrow and with traders expecting another weak economic number, I don't see the market doing much today.  I still like the risk reward on the long side, but I will have to lower my target price because the market is weaker than I thought.

If we are going to rally, it will likely have to be done on Thursday and Friday. 

Economic Data = Land Mines

The bombs keep on dropping.  Durable Orders came in weak and New Homes Sales are due next and that will come in horrible.  There has been severe technical damage during this downleg and any bounce later this week/early next week should be shorted.  We are setting up for a true capitulation in September, this is just a preview. 

Tuesday, August 24, 2010

Rally Catalysts

Here are a few catalysts for a bounce that I am thinking of right now:

  1. Better than expected or in-line jobless claims numbers.  The expectations have gotten sufficiently low that there is a reasonable chance that they can be beaten.
  2. BOJ yen intervention to weaken the yen.  It is a temporary boost to investor psyche in Japan and Asia which would carry over to the US for at least a day or so.  
  3. Fed chatter when they gather on Friday and Saturday in Jackson Hole about more quantitative easing.  This would only be a short term boost to the market but would provide an excuse for a bounce.

Long For a Trade

The dip is deep enough and the news bad enough that I think we've seen a mini capitulation.  I have bought for a trade.  I will likely hold on to the long for a couple of days. 

Doom and Gloom

The existing homes sales number came in absolutely horrible.  But it was well anticipated. The price action right after the report tells me traders capitulated.  We are now very oversold and it would not surprise me to see a strong bounce from these levels in the coming days. 

Give Up

Everyone is nervous ahead of the existing home sales data.  I don't know who is predicting it to beat consensus.  Everyone is expecting a horrible number, so you have traders selling ahead of the number.  Plus, it is getting clear that we are going to have a weak economy for the next few months.  That is all being factored in to the prices.  I expect us to rally from this gap down and finish near the highs.  If we don't, this market is in serious trouble. 

Monday, August 23, 2010

Weak Market

The bounces have been sold but we are getting to the point where a short term bounce should stick.  The intermediate term trend is down, so bounces should only last a couple of days.  I would not be a bold buyer until we get to mid-late September.  The current economic environment is not conducive to big rallies unless we get extremely oversold.  We are not there yet from an intermediate term perspective.  The economic data this week should be bad,  but I think we'll likely bounce on the numbers after kneejerk selling because it is too well known and forecast. 

Bull Nor Bear

It is directionless.  The market has been rushing to go nowhere.  Ahead of a feared September, I cannot picture a strong rally over the next week.  During this seasonal weak period, I don't want to get long unless we are very oversold, and that is not the current case.

September will provide better long term buys than August. All buys till Labor Day will be quick trades.  I expect weakness into the close today.

Friday, August 20, 2010

Bad Fundamentals

The economy is clearly slowing and this week just confirmed the bearish fundamental case.  Next week, existing homes sales on Tuesday and jobless claims on Thursday will probably come in poorly.  I want to buy dips but only for quick trades.  September could have some nasty surprises in store for the bulls. 

Bottomed Today

I think we've bottomed for the day and we'll probably trend higher for the rest of the day.  Options expiration tends to dampen the moves, so since we are down, I expect us to creep back towards 1070.  Buying today or Monday below and selling after a 2% rally looks like a high probability trade. 

Selling Ahead of Time

August is a historically weak time period for the stock market, and traders are well aware of the possibility of increased volatility in September.  The selling seems to have shifted forward, so on an intermediate time frame, weakness now and in early September will likely correspond to strength in late September and October.  So the historical tendencies of the market to bottom in October probably shifts forward by a month.   If we do get a big selloff, September, not October is the likely month when we will bottom.

By the way, for today, the market is spending too much time below 1070 for my tastes.  I will likely wait for Monday or 1061 to make purchases.

August Friday

There is a lack of interest in this market, and another gap down is greeting us.  The traders are nervous about getting long here due to the bad economic data.  If we break the lows overnight, we could have some panic selling today because it is a Friday.  I am still looking to buy weakness but it may be better to wait to see what the trading is like midday.

Thursday, August 19, 2010

Waiting Here

I was just about to pull the trigger intraday but decided to wait for the final hour to buy.  Unfortunately, we have rallied a bit so I will not buy here.  Instead, I will wait to see if we can see some selling from the open tomorrow morning to buy into.  I still believe there will be back and forth trading between 1070 and 1100 till the end of the month.  Any marginal breaches of the range (less than 5 points) will be good fade opportunities.

Trend Day

If we can continue selling off and finish around the lows of the day, I think the market will be worth buying for a trade.  The more we sell off, the better the trade. 

Bull or Bear?

The jobless claims number came in weak again and that plunged the futures.  There are obvious signs that the economy is slowing, and the market sentiment has reflected that.  The tricky part is determining whether the economy and sentiment will get worse or better.  In August, there usually isn't a sentiment extreme, but traders are worried about another plunge in the fall. 

I don't agree with the 2008 analogies to the current environment.  The stock market is much less leveraged and stocks are in stronger hands.  So I don't see a crash coming.  About the most I see this market going down is to the July lows, and that is only with a confirmed double dip.  At that point, I am sure the fear will be palpable and it would be a great buying opportunity.  More likely, we don't get a double dip recession and just maintain low growth, the market should grind higher and eventually reach 1200.  Thus, shorting this market should only be done at overbought extremes.

Wednesday, August 18, 2010

No Conviction

The market is directionless.  It is not an environment where I see a strong trend developing.  The midpoint of this lack of conviction is ES 1098, or SPX 1100.  We have been vacillating between SPX 1070 to 1130 for most of the past 3 months, excluding a few days below 1070.  We are right around that midpoint.  Most traders including me do not have much conviction in this environment. 

Hedge Fund Underperformance

I don't know if it is true, but I am hearing a lot of hedge funds are fairing poorly in 2010 and that could put a lot of pressure on the funds to outperform in the remaining few months of the year.  That means extra risk and usually that will be risk taking on the long side.  It is something to think about if the market is holding up and funds start to chase performance.  Anecdotally, hedge funds still have not fully re-risked and many are expecting to buy at lower prices or are hedged with lots of shorts.  The fundamentals aren't great, but that's not really a big secret.

Tuesday, August 17, 2010

Late Day Selling

This market will have a hard time getting back to 1118 to fill the gap.  There is probably only one more day of rally left and then we'll probably be back to more selling back down to 1070.  I expect a gap up tomorrow.

Economic Gloom

I can't help but notice that probably over 80% of the articles that I read lately about the economy are gloomy.  Since most people think like the herd, most people are expecting lower prices for stocks. 

I like to compare the market mood for points in time when prices are at similar levels.  We were at 1089 on ES in October 2009-November 2009, January-February 2010, and May 2010-current time period.  Although sentiment has improved since May, it is still rather gloomy.  Definitely gloomier than in the October 2009-November 2009 period.  It is similar to what we saw in February, but the gloom has lasted a lot longer this time.

If the stock market matched the negativity, I see no edge.  But if the stock market is stronger than the sentiment suggests, that is a positive divergence.  That is why I can't be too bearish here.

Increased Put Activity

Friday and Monday saw increased overall put activity despite the market mostly treading water.  So it is not a huge surprise to see the market gapping up today after 5 straight gap downs.

Lately, options activity has not been a good contrarian indicator, as equity options buyers seem to have smartened up, as they were heavy call buyers in early July.  But it is still better for the bulls to see lots of put activity than call activity when the market is flat.  With this being options expiration, the bulls should mount at least one rally.  

Monday, August 16, 2010

Another Slow Day

Its another low volume day and I don't see much edge either way, but I do think we will bounce tomorrow.  It is expiration week, so I don't expect us to fall apart on the downside.  It remains a trading range.

Another Gap Down

I don't remember the last time we had 5 gap downs in a row.  But usually it is in an environment of fear.  Right now, it doesn't seem like that.  So usually one would want to buy into the fear, but since we don't really have that much fear, I would rather wait than rush in to buy.  Especially on a  Monday with traders expecting another up day.  I will wait to see more weakness before attempting a buy here.  I expect early weakness.

Saturday, August 14, 2010

1976 or 2004?

There are two historical analogs that I am looking at currently.  They lead to two different long term conclusions.  The bearish case is 1976.  The bullish case is 2004.  The market bottomed in late 1974 and rallied strongly in 1975.  In late 2002 and early 2003, the market bottomed and rallied strongly in 2003.

The current juncture is a market that stabilized off the strong rally off the bottom with the 200 day moving average flattening out.  Below are the 2 other times when the 200 day moving average flattened out in 1976 and 2004, along with the current chart.  I am leaning towards the 1976 case because it will be difficult to blow another real estate bubble in the next 3 years like 2004-2006.  Also, in 1976, the market had gone nowhere for 10 years, like we are at currently. 

1976- market rolls over.
2004 - market goes on to make higher highs.
 2010- probably like 1976.

Friday, August 13, 2010

Buy the Fed Rumor

Well, the strength off the bottom from last Friday's weak employment number can be attributed to anticipation of QE2 from the Fed.  So it was a case of buy the rumor, sell the news.  Going forward, I don't see any catalysts that will have traders buy ahead of perceived good news.  Instead, in early September, I see weak seasonals and the nonfarm payrolls report as possible sell the rumor events that could lead to market weakness near the end of this month. 

Sentiment is mixed, since the bulls have only recently jumped on board and have already started to jump ship after the quick selloff.  I expect next Monday to be weak but the rest of next week should see a bounce.

Mutual Fund Monday

The market has been conditioned to expect a green Monday.  There are actually traders who believe that funds decide to sell ahead of the weekend and buy back on Monday regardless of price.  Maybe the most brain-dead funds operate that way, but in any case, most expect a green Monday.  The current technical setup doesn't support a positive Monday, at least for the first half of the day.  I see it actually more likely that we go down on Monday to form the bottom of this selloff. 

We still haven't filled the gaps from the past 2 days, so we are oversold.  There isn't much to do yet, I am a buyer if we can get a selloff on Monday.

Four Straight Gap Downs

Something is very peculiar here.  There has been a sea change in market action and it is not something that should be taken lightly.  I gave the bulls the benefit of the doubt but now it looks like this selloff will not be the 3 day variety but should last till at least Tuesday.  I am looking for early strength and midday weakness.

Thursday, August 12, 2010

Time and Price

The rally off the July low started 6 weeks ago has exhausted the time element.  The price got very close to the June highs, which exhausts the price element.  Now the selloff should last at least 3 days, so we've got till at least Friday.  But more likely, it will last a week, so we have until next Tuesday before the bulls try to rally. 
The 50% retracement off the July low to the peak on Monday would be at SPX 1070, or ES 1068.  That should be a good entry point on the long side.  We nearly got there this morning.

There was never much enthusiasm for this rally despite it being 120 points up in less than 6 weeks.  So we don't have a lot of excesses priced in.  This market has gone up despite steady mutual fund outflows.  I will give the benefit of the doubt to the bulls. 

Free Fall

This market is in free fall.  This is the 3rd straight big gap down in a row, which is not common.  It shows the extreme weakness in this market.  But usually the 3rd straight gap down is bought and we will likely have a rally in the morning.  But in a hedge fund ruled market, anything can happen as the hot money decides to buy or sell based on momentum and many having re-risked over the past 5 weeks.

Wednesday, August 11, 2010


Well the hot money hedge funds are getting out.  A big drop can come out of nowhere when you have a lot of complacency.  But at the same time, this rally wasn't bought by the public, so I don't see us going down much from here.  We still need to build a top, and it will take time.  I wouldn't be surprised to see us rally back to 1120 next week. 

Puzzling Options Activity

The equity and even index put/call ratios on the ISE are very low, which is puzzling considering the big downdraft today.  The put/call ratio is usually a contrarian indicator, but the put/call ratios have been correct in predicting the future trend of the market lately.  There was a lot of call activity at the lows in early July. 

I still believe this isn't the start of the downtrend, but there is probably only one rally left before we go down for the count and head for 1040.

Not a Downtrend Yet

There have been two big gap downs in a row, and the first one filled, which means today's gap down is less likely to be filled.  On Friday and Tuesday, the market has been tested on the downside only to rally into the close.  I don't see that happening today.  Each time you knock on support, it gets weaker.  We have already busted through that 1106 area which was support on Friday in the premarket.  We're likely to close on the lows with the Fed news out of the way.

Looking past today, we're probably going to top around the 1095-1125 area before seeking a trend, which should be down.

Tuesday, August 10, 2010

Fed Ambulance Chasers

Once again, today proves that the Fed is always late.  When Europe was in a near crisis, the Fed did nothing in June.  Now that things have stabilized, the Fed comes in with more money printing.   Liquidity trumps the fundamentals.

Fed Delivers

The market cried for more quantitative easing and Banana Ben delivers with another arrow aimed straight at the heart of the bears. I don't believe this is a game changer, and I will be looking to short this move if we can fill the gap.  I'm hoping this panics out the dollar bulls/euro bears into liquidating  their positions.  I would like to enter a short euro position into the panic.

Lowering Expectations

The market has changed expectations overnight from the Fed coming in to rescue the market with more QE to the Fed staying with the same policy but with some supporting words of continued easing in the future.  I have not seen a big down day on a FOMC meeting start with a big gap down.  But the price action speaks of more weakness after the meeting.  It is a bit confusing in the short term.  In the intermediate term, this looks like topping to me.

Preview of Weakness

It isn't common for us to gap down this big ahead of a FOMC meeting, and it must be catching a few traders by surprise.  If we don't have much of an upmove ahead of the Fed, we could have a "surprise" big down day on a Fed day.  If the market doesn't get its goodies- more QE, the market will go down sharply.  It seems we are overdue for a bad day when the Fed makes its announcement. 

Monday, August 9, 2010

Jockeying Ahead of FOMC

The trade today is positioning ahead of the FOMC meeting.  Thus, we are mildly positive on the day.  It appears as if traders want to be leaning bullish now ahead of possible additional quantitative easing.  It does set the market up for disappointment if what is offered is less than expected.  I believe the odds favor the market selling off after the announcement tomorrow.  But, the price action and the strength in the face of bad news on Friday are signs that this market will not fall down much in the near term. 

Dollar and the Fed

The dollar has been selling off with weaker than expected US economic data, stronger than expected eurozone data, and now looking ahead into the FOMC meeting, we are facing possible QE 2.0 which is probably making the dollar bears even bolder.  I expect the dollar to strengthen if there is no new QE 2.0 announcement, which is the most likely scenario.  That should push the euro-dollar back down towards 1.30. 

FOMC Anticipation

There is a lot of anticipation going into tomorrow's FOMC announcement, hope for QE 2.0.  The nonfarm payrolls miss is history now.  We have the usual "Mutual Fund Monday" phenomena, even though there are no mutual fund inflows.  On a time basis, this rally should be finished this week.  We have rallied for almost 45 days, which is the usual length of a countertrend rally in a bear market.  This is if we are in a bear market.  However, the sentiment is not supportive of that view.  There is still some skepticism of this rally.

Friday, August 6, 2010

First Dip Bought

After a strong rally like we had on Monday, there was never a dip of more than 1% from high to low, so when we finally got that sizable dip, the dip buyers ate it up and now the deficit which was as big as 20 points down is barely 6 points.  I am betting that the next time we dip 20 points, the market won't bounce back so quickly.  It makes the action a bit confusing at the moment, because there was a good buy entry point available if the market could go down a bit more to 1099 to fill the gap and also be helped by support at that level.  Now we are back to no man's land, but the bulls have Banana Ben working their corner on Tuesday.  I don't see the bears getting too aggressive until after the FOMC announcement.  Looks like the bulls dodged another bullet.

Counterintuitive View

I think a bad jobs number is better for the stock market.  It gives the Fed more backing for its QE 2.0 program which is bullish for asset markets.  The markets are always forward looking, and we have the FOMC meeting next Tuesday.  

Nonfarm Payrolls

The number came in below consensus and we are getting a big drop in premarket.  In general, the market tends to overreact on the upside and the downside.  This looks like an overreaction to the downside so I would expect the market to bounce back from today's weak number. 

Thursday, August 5, 2010

Shallow Pullbacks

From a purely technical perspective, it is bullish.  The market is not dipping much and when it does, the dips are quickly swallowed up and the market floats higher.  I can't imagine the nonfarm payrolls report to lead to a big selloff.  I see the most likely scenario being a quick dip on a slightly below consensus number and then the market rallying into the close and making new highs for this rally up to 1135.  The other scenario I could see is the market squeezing higher on an above consensus number and then peaking during the middle of the trading day and then fading a bit into the close.  In either case, I think we will likely go higher from current levels. 

Global Inflation Trade

Oil, the grains, the softs, and metals are unusually strong for a "deflationary" environment.  Deflation sounds intectually correct but the financial markets are telling a different story.  Technological improvement, higher efficiency, and Chinese wage arbitrage kept inflation in check but those effects are disappearing rapidly.  On the monetary side, money printing is the default policy choice at the Fed.  I just don't see deflation happening.


I am out of the short and will be watching on the sidelines.  This market has not been giving many opportunities for dip buyers this week so I don't think the market will fall hard quite yet.  I will be looking to short only the best setups, because the uptrend is stronger than I expected.

Gaming the Jobs Report

There are some tendencies ahead of the job report that can give the trader an edge on predicting the market's reaction to the jobs report.  In general, if the market are very negative ahead of a jobs report, the jobs report can often serve as the flush out point (see SPX chart for early July 09, October 09, June 10, July 10).  If the market is complacent and positive ahead of a jobs report, the jobs report can often be a top (see SPX chart for early June 09, Aug 09, Jan 10).

The trading template that I usually use for the jobs report is the same that I use for other event days like the FOMC, big awaited announcements like the stress test, etc.

 There was something that I heard on CNBC that was actually true and useful information.  Scott Nations mentioned that a market that is strong the week of the jobs report usually reacts positively on the jobs number, especially if there is nervous sentiment ahead of the number like this one. 

For Friday, I see a small possibility of a top, but perhaps a continuation into next week as the FOMC meeting is on Tuesday.   I definitely do not think we will drop big on the number, there are too many looking to buy on a weak jobs number that I doubt the market will oblige.

I will be looking to cover my short this morning.

Wednesday, August 4, 2010

No Pullbacks

Looks like a repeat of March 2010 with no pullbacks till we get to 1200.  This market is not letting the shorts cover and the underinvested buy on dips. The dips are very shallow and snapped up quickly.  We will probably squeeze higher and have a blowoff top on Friday after the nonfarm payrolls report.  1145 or SPX 1150 will be the likely targets as the de-risked hedge funds panic buy. 

Fast Money Bullish

They are all bullish today.  They were all bearish yesterday.  Of course, usually whatever direction the market is heading, they feel like it will continue into the close.  Euro is weakening and so is crude oil.  With solid resistance above, I feel like the risk reward favors the bears here until the jobs report. 

Fading this Move

Getting short here, looking for lower prices on Thursday.


Was there some memo sent by the Fed to all the banks and media outlets to talk up deflation so they can continue printing more money?  Oil is at 82, gold is at 1200, wheat is at 7, and copper is almost back to pre-bust levels.  I also hear rents are steady to rising. 

This only emphasizes my view that the Fed is always late.  About 1 to 2 months late.  They are still viewing everything from when the markets were getting crushed in May and June. 

Reaction to ADP

This kind of a strong upward reaction to the ADP number is unusual, especially for a number which is around consensus.  Unfortunately, this only makes it tougher to game the nonfarm payrolls report.  I was expecting a buy on the news reaction to the nonfarm payrolls report but that becomes trickier because expectations and/or prices will be higher ahead of the nonfarm payrolls. 

This gap up surprises me, so I will wait till at least 10:00 AM before putting on short positions.

Tuesday, August 3, 2010

Gap Down

Either tomorrow or Thursday coming up.  Not one of the 2 or 3 point variety, but closer to 10 points.  Traders are going to be skittish ahead of the nonfarm payrolls report. 

Fast Money Bearish for Today

The opinions on Fast Money Halftime are bearish for the intraday action towards the close.  We are range bound today from 1113 to 1123.  But I expect us to close similar to yesterday, the upper end of today's range. 

I think there will be a down 1% day either Wednesday or Thursday, so I am currently looking for an opportunity to short. 

Defined Ceiling

Yesterday's trade has given us a range of reasonable trade ahead of the nonfarm payrolls report.  For Tuesday through Thursday, on the upside, we are capped around 1126.  On the downside, it is harder to define, but a gap fill down to 1099 is possible.  Thus, I will be looking to put on a short if we can get a rally in the first hour of trading.  If I do get short, I will not hold it past Thursday.  I believe we can have a rally after the news phenomena on Friday.

Monday, August 2, 2010

Subtle Weakness

Usually when you have a market gapping up big and maintaining strength for the 1st half of the day, the 2nd half of the day continues the rally but today we basically flatlined after the European close.  That is a very subtle sign of weakness.  I believe 1128-1130 will cap any rally from here and will be a good spot to attempt a counter trend short with a time target of Thursday morning. 

Euro Short Chance

The euro-dollar is coming up to strong resistance at 1.32.  From a purely technical trade, there should be choppy trade as the euro trades against strong resistance.  We could see range trading from 1.30 to 1.32 for the next couple of weeks.  A short at 1.32 provides a good risk/reward ratio.  With a modest target between 1.29 to 1.30.

Traders Confounded

Just last Friday we were worried about the poor GDP numbers facing a big gap down.  Now, we have a market squeezing higher and I don't see much enthusiasm.  Traders are still cautious getting long ahead of nonfarm payrolls on Friday.  For today, I still believe we have more room to run and probably close near the highs of the day.  We may have limited upside from Tuesday to Thursday but I would expect buyers to start getting more aggressive after the nonfarm payrolls report on Friday. 

Big Gap Up

There is no significant news out there and we are up big in the pre-market.  Those are usually the gap ups that I do not like to fade, especially coming off a pullback where we made higher lows.  

But one thing I am noticing is the lack of movement in the euro, despite positive PMI data in Europe and the higher markets. Maybe the euro is close to topping out here.

The ISM index and construction spending comes out at 10:00 AM.  Also, today is the first day of the month, which is generally bullish.