Yesterday, the market was able to post a nice rally after a better than expected GDP report. Strength from exports and the tax rebate helped to fuel the economy. A decrease in initial jobless claims also helped as did a better than expected durable goods orders report (Wednesday). With many traders taking time off, the market rallied unimpeded.
The SPY closed above 130 which is a minor resistance level. Continuation through this resistance would be bullish and we could see short covering. I am very cautious when trading the long side of this market. The intermediate term trend is down and I don’t want to get suckered in ahead of a seasonally bearish period.
The headwinds are still blowing strong. Unemployment is on the rise, consumers have high debt levels, banks are on the brink of failure, global economies are contracting and global interest rates have been on the rise. These conditions will keep a lid on the market since they will not be resolved anytime soon.
Next week, there will be many economic releases over a four-day period. The biggest by far is Friday’s Unemployment Report. A number is pivotal. A strong report will spark a short covering rally while a rise in unemployment will raise concerns that the credit crisis will spread. This data has the potential to create a breakout or a breakdown from the current trading range.
The Fed does not meet for another two weeks and this number will have the greatest influence until then.
For today, overseas markets finished higher and the last three days have been bullish. The market is bumping up against resistance at SPY 130 and no one will want to place a big bet heading into a three day weekend. This means that we are likely to see a choppy trading. Dust off the golf clubs and enjoy the day.
Have a great holiday!