Expect Choppy Trading Ahead of the Unemployment Report – Watch SPY 105!

September 29, 2009
Author: Peter Stolcers, Founder of OneOption

Yesterday, the market staged an impressive one-day rally. Most traders have been looking for a top and last week's key reversal after the FOMC meeting had many thinking that the long-awaited decline might start – wrong again. The market has been able to climb a "wall of worry" during the last few months and every little dip finds immediate support. Asset Managers are under allocated and many have missed this move. They do not want to be left behind during a year-end rally and they are aggressively bidding for stocks. The end of the third quarter is upon us and "window dressing" could be a positive influence during the next few days. However, nervousness ahead of the Unemployment Report should keep a lid on the market. Many economic releases lie ahead this week. This morning, the Case-Shiller home price index rose 1.6% across 20 metropolitan areas. That provided a nice little "pop" for the market. Unfortunately, consumer confidence fell unexpectedly in September. People are worried about their jobs and they will act accordingly. Consumption drives 70% of our economy and we won't see an economic recovery until spending increases. Tomorrow, we will get the final revision to second-quarter GDP. It beat expectations last month and it is not likely to impact the market. Chicago PMI is expected to come in at 52. That would signify economic expansion and it should be a positive for the market if it meets expectations. The ADP employment index is likely to have the biggest influence tomorrow. It will give traders a sneak peek at Friday's Unemployment Report. The consensus estimate is for a decline of 200,000 jobs. If we get close to that number, the market will rally. Jobs are critical to an economic recovery, but the market has been satisfied with gradual improvement month over month. That is likely to continue this week and even if Friday's number comes in slightly below consensus estimates; the market should be able to hold its own. If we decline prior to the release, the market could rebound after the number. M&A is starting to resurface and "Merger Monday" should keep sellers at bay on Fridays. On the other hand, if we get a rally ahead of the unemployment number (unlikely) we are likely to decline after the release. The most likely scenario is that we chop back and forth throughout the week with a muted reaction to the actual number. Interest rates and earnings are the key to this market. Rates have been low and earnings have exceeded expectations. As we enter Q3 and Q4, year-over-year comps will get easier to beat in the numbers will look relatively good. As long as the market stays above SPY 105, you can stay aggressively bullish. If we close below that level, take profits and trim positions. The next key level is SPY 100. That level is critical because penetration would result in a lower low. From a technical standpoint that would mean the recent high has major resistance and we might be ready to roll over. I feel that valuations are getting a little stretched and I like selling out of the money put spreads during this final leg of the rally. This strategy keeps me a safe distance from the action and every expiration, I'm able to wipe the slate clean and reevaluate the market. The market feels a little heavy today and I expect some of yesterday's gains to be taken back. Traders are looking for direction and I don't believe they will find it until earnings season has started. Expect choppy action this week with the market finishing right where it started. image

Daily Bulletin Continues...

Want Full Access?

Become a Member

Start Free Trial

No credit card required.


Previous Bulletin

September 28, 2009

Next Bulletin

September 30, 2009