Jobs Report Will Be A Speedbump – Keep Your Size Small – Wait For the Reaction

TAKE THE 1 WEEK FREE TRIAL FOR INVESTORS AND FOLLOW OUR OPTION TRADES Posted 9:45 AM ET - Yesterday, the market took a breather. Bullish sentiment is high and the market is treading water below major resistance. A few words from Janet Yellen sparked selling and Friday's Unemployment Report could spark more selling. The Fed wants to keep a December rate hike on the table. Yellen said that barring a disastrous jobs report in November and December, she could see liftoff happening in 2015. ADP came in at 183,000. That was a decent number and initial jobless claims have been trending lower the last three weeks. I believe tomorrow's jobs report will come in around 185,000 and September's number will be revised upward. In previous months, this would be considered "Goldilocks" because it's consistent with sluggish growth and a dovish Fed. With a rate hike in play, 185,000 jobs is not strong enough to justify a rate hike and many traders will wonder if the move is premature. I don’t believe the market is mentally prepared for a rate hike – traders simply do not think the Fed has the guts to hike in 2015. GDP, durable goods orders and ISM manufacturing all came in soft this week. Facebook knocked the cover off the ball and tech stocks are moving higher. This was the last of the mega cap tech stocks to report and the excitement will wane in the back half of Q3 earnings season. The market does not typically breakout to a new high on its first attempt. We need to flush bullish speculators out and the jobs report tomorrow could be a speed bump. This selling will also attract shorts. The move will be quick and the dip will be shallow. Once support is established, Asset Managers will buy and short covering will slingshot us to the all-time high. I don't believe we will have a massive breakout with follow through. Prices are stretched at a forward P/E of 17 and this is the second consecutive quarter where year-over-year earnings have declined. The dip will present a nice little buying opportunity. Seasonal strength will prevail and we should challenge the high. All of my positions the rest of the year will be very small unless we get a big decline below SPY $206. I am neutral and my overnight risk exposure is tiny. I own a few calls and I own a few puts. I want to see how all of this plays out. If my suspicions are correct and we pullback, I will be selling bullish put spreads and buying calls next week. If you are compelled to carry overnight positions, make sure you have a few puts mixed in with your calls. If my forecast is dead wrong and the market takes off, I will be able to catch most of the move day trading. I can’t make a case for holding overnight positions now. We've seen selling the last two days. Let's see if the gains this morning hold. . .

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