Market Has Declined After the Jobs Report the Last 2 Months – Pattern Should Repeat

Posted 9:45 AM ET - This week the market managed to inch higher and the S&P 500 is within striking distance of the all-time high. The last two months the market has rallied into the jobs report and we've seen a nasty decline after the release. I'm expecting this pattern to repeat itself tomorrow. Resistance at the all-time high is heavy and we've seen huge reversals on every breakout attempt. The earnings news has been fair and economic conditions are sluggish. Signs of pent-up demand have not shown up yet. Yesterday, ADP reported that 220,000 new jobs were created in the private sector during the month of April. That is in line with expectations, but it does not even cover new workforce entrants. Analysts are projecting 215,000 new jobs when the government releases its report tomorrow. Anything above 250,000 will spark a rally and anything below 180,000 will attract sellers. Preliminary GDP was released yesterday and it increased .1%. That was much worse than expected. This morning, initial jobless claims rose for a second straight week to 344,000. Temperatures have been rising in recent weeks and builders should be back to work. ISM Manufacturing will be released at 10:00 AM ET and that will impact trading. Retail sales are barely keeping pace with inflation. Yesterday, Panera said that same-store sales were up .4% in the last 27 days. If there is pent-up demand, I'm not seeing it. Corporations are lean and mean and costs have been cut to the bone. The only way they can increase profits is through revenue growth and sales will not improve until economic conditions rebound. At a forward P/E of 16, stocks are rich. Bonds, drugs, utilities and REITs have been moving higher. These investments typically do well when Asset Managers are reducing risk. European economic conditions are improving, but China is soft. Fiscal stimulus in China will not bear fruit for many months and traders will grow impatient. Shadow banking credit concerns could escalate if economic activity in China continues to slip. This week, 30 of 31 provinces reported weaker than expected GDP. Bad weather can no longer be blamed for sluggish domestic conditions. Traders will not give future numbers a free pass. If the market breaks out to a new high, I will cover my short positions and I will go to cash. I barely started scaling in and my put exposure is small. I can't justify a breakout at this level so I can't trust it. If I did get long, I would constantly be looking over my shoulder. My first trading rule is that scared money never wins. For this reason, I will wait for economic confirmation on the sidelines. The more likely scenario is that the market declines after the Unemployment Report. Even if it hits expectations, 220,000 jobs is nothing to get excited about. I bought puts right at this level last week and I added at $186. I am taking a little heat on my position, but I knew that was possible. I will buy more puts at $184.50 and $183. Many global markets are closed today. The action will be very slow ahead of a major release and I do not believe the market will breakout today. Trading should be very dull. Buyers and sellers have been paired off and we should have a winner tomorrow. . .

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