ADP Better Than Expected – But Not Great. Market Will Try To Rally Into Jobs Report

Posted 10:00 AM ET - Monday was an extremely volatile day that included two 20 point S&P 500 reversals. Yesterday was exactly the opposite. The market made an initial move and it traded in a two-point range the rest of the day. Buyers and sellers are paired off. ADP said that 220,000 new jobs were created during the month of April in the private sector. That was better than expected, but it is a far cry from good. GDP came in at .1% and that was worse than expected. Chicago PMI was better than expected. The FOMC statement will be bittersweet today. The Fed will taper, but they will leave room to pause if economic conditions deteriorate. This news should not move the market, but any reaction favors the downside given that we are within striking distance of an all-time high and the resistance at this level has been stiff. Friday's Unemployment Report is expected to come in around 210,000. A number above 250,000 would spark buying and a number below 180,000 will attract sellers. In the last two months the market has rallied into the jobs number and it has declined after the release. I'm expecting a similar pattern this time around. EBay and Twitter posted results after the close yesterday and both stocks are down sharply this morning. Panera is down $9 and any stock with a forward P/E over 20 is getting nailed. I am not seeing signs of pent-up demand and I believe traders are getting anxious. Bond yields have declined and that suggests a flight to safety. Utilities, pharmaceuticals and REITs have been leading the rally and that also suggests a flight to safety. We've seen heavy resistance at the all-time high and I don't see a catalyst to push us through. The market is overdue for a correction and I believe that “weak hands” need to be flushed out. We are in a five-year bull run and it is foolish to pick the top at the all-time high. I am waiting for technical breakdowns and I will scale in to put positions on weakness. I bought puts last week when the SPY was at $188 and I am up slightly on that position. I bought more puts when the SPY breached $186. I'm sucking wind on that trade, but my position is small. I will buy more puts at SPY $184.50 and $183. My stop is SPY $189. I believe a slowdown in China and credit concerns in their shadow banking system will be the source of the next market decline. The depth of this problem is hard to gauge and it has the potential to spark fear. Look for opportunities to buy puts and be patient. I believe the market will try to push higher Thursday. Buyers and sellers are waging a battle and the winner will be known in the next few days. Expect choppy trading the rest of the week. I will get more aggressive with my put purchases after the jobs report. . .

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