OK. I’ll be the first to admit that I didn’t expect such a strong move in the securities market today. After Friday’s sell-off, it seemed likely that the downward tilt would continue since the reason we lost momentum to begin with, Egypt, hasn’t resolved itself. I guess we’re quick to dismiss global turmoil if it doesn’t feel like a direct influence on our ability to spend or buy oil. It appears that the Suez Canal is safe and so then, is the flow of oil. With that, and the lack of increasing violence in Egypt or significant news out of China, traders turned their eyes back on domestic events.
It’s fair to say that earnings have been good. Outside of a few disappointing reports (hello Ford, FFIV) the marketappears to be moving in the right direction. Today, we just got plain nutty excited and broke through a psychological level on the SPX (1300) as the risk trade and confidence roared back on to the trading floors. The large caps took control, but the mids and smalls are starting to pull some weight, as well. “Emerging markets are too risky and the U.S. will come out of this recession on top.” I’m starting to hear this more and more. Hmmm, is confidence back in America? Was the earnings season that strong and capable of overshadowing issues like unemployment and inflation? Have we forgotten that the market is, in part, propped up by the Fed? I’m not attempting to deny the bull move and it’s vital that we play what’s given. However, all is not perfect, so no need to blindly toss every penny you can find between the cracks in your couch into the stock market.
Today, after good earnings numbers, we saw a strong ISM Manufacturing Index report. Anything over 60 is considered very healthy and we reported 60.8. The report that was clearly dismissed today was the ISM Manufacturing Prices. This report indicates the fear or likelihood of increased inflationary fears. We reported a whopping 81.50 vs a forecast of 73.5 – that’s quite a difference and a little alarming. If raw materials constrain businesses, will they be less likely to hire? More likely to raise prices to consumers? You get the point. All is not perfect… but, we trade what’s given. It is HOW we trade that varies depending on the environment. Price and direction determines the WHAT.
As a technical swing trader, the charts matter… almost more than anything else. But, how much you’re willing to risk on a trade and how much cash you’re holding will have a lot to do with other data points. A few thoughts to consider as you approach your trades this week.
- The dollar is near lows and approaching support trendline. Will it break below (and push the equities market up) or will it find some support and bounce?
- We’ve broken through psychological resistance levels and we saw strength on short squeezes as the bulls took over. Traders like targets.. We hit it, so now what?
- The weekly SPX chart has moved 2 weeks outside of bollinger bands (20,2).. implying the move is a little too fast for comfort.
- Earnings after the market closed on Tuesday were mixed.
- Egypt not resolved.
- SPX daily RSI 14 NOT overbought.
- Resistance has been broken, new buyers don’t want to miss the boat. Risk trade is on. Look for the small caps to be in play.
Data we’re still watching this week:
- Wednesday’s Nonfarm Employment numbers (forecast 150k)
- Lots of earnings still on tap.
- Initial Jobless Claims
- Nonfarm Productivity
- Unit Labor Costs
- Nonfarm Payrolls
- and the big Friday unemployment rate
- Average Hourly Earnings – this needs to go up as we deal with inflation
- Oil prices. We’re ok as long as it stays under $100
As we get ready for hump-day, I can’t help but wonder if it really will be a hump day and the rest of the week will trend down as silver and gold move up. Hell, I don’t know. I’ll continue to play what the market gives me, but I’m not going to drink the koolaid and not leave some cash in my pocket. In poker terms, this is no time to be all in – it’s time to be selective and stay nimble.