Friday's Rally, Monday's …?



After last week’s roller coaster ride, most retail investors find themselves exactly where they were last weekend at this time.. Cautious with a pinch of anxiety. Will we continue the late Friday rally, or will we resume the death spiral towards the basement on global growth concerns?


Fundamentals and technicals aside, the psychology of the market is still jittery, at best. Most traders don’t suddenly have a since of calm and inner peace from Friday’s rebound. The market is nervous and volatility is still very high. Don’t forget, it is human nature to look for the scary lion in the grass instead of gazing at the blue sky above. One small roar from the market could make the traders run for cover with cash in hand.   That’s what we carry into Monday – we want to play in the fields again, but we believe there are more lions than usual waiting for us.


Ok, sure, traders wanted to test the Flash Crash lows and yes, the market is technically over sold with some sectors very oversold. That’s good right? We hit the anticipated near term low and snapped back up! Yee haahh! Up from here, right? Hmm.


Is it time for fundamentals and actual market data to rule again now that the technical Flash Crash bounce occurred? Well, overall, the fundamentals are still pretty good in the U.S. , but global uncertainty (those who might buy our goods) is front and center and will continue to haunt us. The interdependence between economies is evident and that makes traders of U.S. equities pause – kind of makes you feel a little out of control of the situation or that there might just be too many pieces to the puzzle. Even so, I do feel that U.S. equities are looking more and more attractive compared to other countries. I’m just not ready to go in heavy.


Unemployment numbers do matter and this week will be more about us than Europe.


Until unemployment really starts moving in the right direction instead of just holding steady just under 10%, I don’t think we’ll see a major rally in this market. Maybe we’ll see a few significant bounces based on global news and other data releases. But, without employment, confidence is hard to come by. Still, many feel that employment will catch up later in the year. Well, that’s what most thought until Europe credit issues and concerns of a Chinese slowdown came to light. Now what? Again, uncertainty. Uncertainty never helps a market move up.


Look at these workforce numbers – flat. 
The job creation numbers show a slight move up over the last two months if you squint really hard at this chart:  . There just isn’t much there. 
Check out this article.    Kind of a mixed message, yes? “Improvement in underemployment stalls in mid-May. However, unemployment declines to 9.4% as job creation remains at its best level of the year.”


So, what are we left with in the near term… more specifically – what’s up this week? 


News and Events –


Trade Talks with China –  I really feel that China will significantly influence where our markets move over the next few weeks.


Europe – Blah. I think the news will be minimal this week out of Europe. They’ve helped tank markets around the world lately, but don’t anticipate significant news this week. We’ll see.


U.S. – I believe the trading direction this week will depend more on domestic news and less on Europe. China will be in play, but eyes will be heavily focused on U.S. economic data. Overall, the view is optimistic, but we should trade cautiously.


We start of the week with Exiting Home Sales on Monday .

If it smells good, we could see a market move up in the morning as investors nibble on value plays.


Tuesday is all about Consumer Confidence.

Consensus has it up from April, but I’m not so sure. 


Durable Goods Orders and New Home Sales numbers will be posted on Wednesday – this will be a great temperature check and, in my opinion, a pivotal point in the week. By this time, we will start feeling better or worse about the future and the markets will reflect it.


Thursday reports include GDP and Jobless Claims.  


Summary –


Life wasn’t easy last week for those buying and holding stocks. It is hard to weather a storm with this much volatility and uncertainty. Conditions still favor the intraday scalper or day trader who can quickly spot moves. Until the VIX relaxes, I’m going to stay very heavy cash and hold few, if any, positions over night. 


We’ll know a lot this week about the strength of the U.S. economy. If we see any signs of weakness, I expect a rather significant fall in the market as investors run convinced there is no hope in the near term. Be careful fellow traders. The next leg down could really snowball. Stay nimble and don’t fall in love with a trade. Take profits and preserve your portfolio.


From a trading standpoint, there are a handful of nice setups IF the market holds Monday and confidence steps back in. In my blog later this evening, I’ll post a handful of stocks that have pulled back to support that could run with the next pop up. 


Think about your risk tolerance before trading tomorrow. Are you prepared to enter positions ahead of numerous economic reports? If so, think about your exit strategy based on the news. Also think about how much time you can devote to your computer tomorrow. As mentioned, this market is volatile – if you’re not day trading, you could be buying a swing trade worth 20% less on Tuesday.

See you in the Boom Factory.



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