Market Should Drift Lower This Week – Catalysts Are Gone – No Signs of Pent-up Demand

Posted 9:15 am ET (Pre-Open) - Yesterday the market probed for support and once the momentum was established it continued to drift lower. This post jobs report pattern is repeating and we saw it in March and April. All of the catalysts are gone and I believe the market will drift lower this week. Earnings season is winding down and the strongest companies have announced. Their results were not impressive enough to push the market to a new all-time high. With the exception of Disney, the overnight releases were weak. Retailers will start posting results and traders will be looking for signs of pent-up demand. I don't believe we'll see it and the news will weigh on the market. Corporate profits are up 1% and revenues are up 3%. Stocks are trading at a forward P/E of 16 and they are fully priced. That means there is room for a correction. The jobs report was another potential catalyst and a "beat" did not attract buyers. On the surface, 288,000 new jobs looked good. The number was filled with seasonal adjustments and it was inconsistent with ADP, Challenger Gray & Christmas and the recent spike in unemployment claims. The economic releases are minor this week. China will post its trade numbers tonight and it will post retail sales and IP next week. Analysts believe China will become the largest economy in the world in 2014. It has fueled global growth for the last decade. As China goes, so goes the world. This is the darkest cloud hanging over our market. Activity in Europe is rebounding from a deep recession, but GDP is only expected to grow 1.3% this year. The Fed continues to taper and it should end the bond purchase program in October. Janet Yellen will testify before Congress and she will leave room for a pause if economic conditions deteriorate. Consequently, her statements today won't have much of a market impact. The SPY closed below $187 yesterday and I held onto my put positions (barely). I am back to my breakeven point and I need to see follow-through selling today. Time decay is becoming an issue and I will exit today if the market does not finish in the red. If the market rallies I will focus on day trading and I will not hold bullish positions overnight. I will buy June put options if the SPY trades below $186, $184.50 and $183. Until we breakout ($189) or breakdown ($183), consider this a low probability trading environment. If the market trades below the 100-day moving average in May, get ready for a correction. Look for a drift lower this week. I want to see failed rallies and late day selling. . .

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