Yesterday, we saw follow-through selling and the market probed for support. The gap from Monday was filled in and buyers nibbled late in the day.
The EU increased its “firewall” by €200 billion (now at €700 billion). That is helpful, but it won’t prevent contagion. Spain released its budget and the target deficit is 3.5% of GDP. They will accomplish this through individual and corporate taxes and utility price hikes (7%). The news has not had a major impact.
Consumer sentiment hit its highest level in over a year. Chicago PMI was also better than expected. This was good news and I am surprised it did not spark a little buying.
We have been in the news vacuum and that will change next week. Major releases will present trading opportunities.
Monday morning, Europe and China will release their official PMI’s. Soft results are expected (because of the flash numbers last week) and stocks could drift lower on the news. Weakness in China could prompt the PBOC to lower bank reserve requirements so any selling will be relatively contained.
ISM manufacturing will also be released Monday and it declined last month. This news could also weigh on the market.
That dip will present a buying opportunity and the news the rest of the week should be market friendly. ADP employment, initial claims and the Unemployment Report will all show strong job growth. Initial jobless claims have been declining steadily for the last two months. Warm weather across the US has construction workers back to work earlier than normal. ISM services was strong last month and it will be released Wednesday.
I am expecting the market to decline and bounce Monday morning. I suggest adding to call positions once support is established (SPY 138 won’t be tested). Traders will try to get a jump on the ADP report and they will start buying Monday and Tuesday.
In the last few months the market has rallied on the ADP report and good news gets priced in for the Unemployment Report. Even though Friday’s number will be bullish, there won’t be much follow-through.
The market will be closed during the release and traders don’t want to get caught short over the holiday weekend. The trend is bullish and the buying will start early next week. The consensus estimate is for 215,000 and I believe that number is low.
Earnings season is a couple of weeks away and this strength will feed into Q1 releases. We have not seen many warnings and Asset Managers will buy ahead of the news.
I believe this market still has a few more good weeks left in it. Buy calls on weakness and look for stocks that are breaking out after a period of consolidation.
The market looks like it wants to grind higher today and you can add a few call positions.
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