Market Should Tread Water This Week – Speed Bump Ahead On Aug 12th

Last week the market bounced off of the 200-day moving average ahead of the FOMC statement. Traders were expecting dovish remarks and they got it. Follow-through buying pushed us above the 100-day moving average. That support level has been tested twice today and it is holding. ISM manufacturing came in slightly below expectations today. ISM services, ADP and the Unemployment Report will be posted this week. All of the numbers should be in line and a "Goldilocks" jobs number (220 K) should attract buyers. I'm not looking for a big rally. Resistance is strong and gains from this point on will be hard-fought. Earnings season is more than half over and the results have been good (not great). At a forward P/E of 18, there is room for profit-taking. I believe we could hit a speed bump on August 12th. China will post retail sales, foreign investment and industrial production. These numbers are likely to disappoint. The recent market crash will impact activity and the official PMI was light this morning. China has the largest economy in the world and the recent market decline has been completely discounted by the market. This will shake investor confidence and Chinese consumers will be much more cautious. The PBOC sees signs of inflation and they are not likely to cut. Trillions of dollars have been spent by the government and this stimulus is barely keeping their economic growth intact. With each passing week, we get closer to the September FOMC meeting. Most analysts believe that rates will rise. This will keep a lid on the market and it will spark profit-taking if there is any bad news. Traders traditionally take time off in August. The bid will be light and a small round of profit-taking could lead to a nasty decline. We should see choppy conditions this week with a bullish bias. I will sell out of the money call spreads if we close below the 100-day moving average. Option implied volatilities are low and this is not a primary strategy - I don't feel like I'm being properly rewarded. If the market closes below the 200-day moving average, I will by puts and will be a little more aggressive. Swing traders can focus on stocks that are breaking through horizontal resistance after reporting strong earnings. These moves tend to last 2 to 3 days. I am currently day trading and I haven't had a losing day in weeks. We are trading one specific pattern in our chat room. Because of our success, I'm reluctant to change to another strategy and I will stick with what is working. The market has been extremely quiet today and we can expect more of this in August. . .

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