PM: Looking forward to employment

S&P500 daily at end of day

PM Update

The market recovered soem of Wednesday’s losses, but will it all be wiped out by Friday’s employment report?

MARKET BEHAVIOR

Stocks reclaimed half of Wednesday’s selloff and closed right at 1560 support/resistance.  Volume was slightly below average, but coming back from the especially light volume of the last few weeks.  It appears traders are returning from vacation and reengaging this market.

MARKET BEHAVIOR

The headline event on Friday is the monthly employment report.  A year or two ago this was a critical data point and a make or break moment for the market.  Once we started printing job gains in hundred of thousands, the market became less obsessed with it and its been a while since it moved the market in a lasting way.  At this point the employment report is nothing but a tool for people to trade their preexisting bias.  The straight forward scenario is strong number = up and bad numbers = down.  But people can flip this on its head to justify acting in the opposite direction.  If someone wants to buy stocks, they will claim a lousy employment report keeps the Fed’s money flowing.  If another person wants to sell the market, they will criticize a strong employment report because it means the Fed will end easing sooner.

News is random, but traders’ reaction to it is not.  The recent run up priced in a decent amount of good news and most buyers are already in the market.  This leaves fewer buyers to push prices higher.  To keep this thing alive, bulls need to thread the needle between not too bad and not too good to prevent holders from rushing for the exits.  It’s entirely possible, but this is the riskiest the markets been since mid-November.

TRADING OPPORTUNITIES

Expected Outcome:
This market has been largely oblivious to headlines and this report will likely be more of the same.  The market is going to do what it wants regardless of some fundamental data point.  It feels like the market is stalling and paranoid holders could use the employment report as a reason to get out.  Even if the market pops, watch out for follow on weakness.  Its taken a lot of buying over the last 4.5 months to get up here and every market needs to take an occasional break.

Alternate Outcome:
Many traders are expecting a pullback for all the same reasons I see.  If this expectation is popular enough, it causes many buyers to hold back, creating fuel the next rally leg.  When buyers wait for the pullback, but the market holds up, this demonstrates solid support at these levels.  Prices head higher once these worrywarts are forced to chase a market that is leaving them behind.  That’s been the recipe for the Q1 rally and it could easily extend into Q2 if cynicism remains widespread.

NFLX daily at end of day

INDIVIDUAL STOCKS

AAPL cannot get out of its own way and fell another percent.  It is less than $10 from recent lows and threatening to set off a wave of stop-loss selling and shorting if it breaks this key technical level.  Expect many regretful holders to join the selling as the stock drops toward $400.

NFLX is looking for a bottom after breaking support at $160.  The biggest concern the stock getting caught up in bigger market weakness.  If the market breaks down, NFLX and all the other high-flyers are a bad place to hideout.  These high-beta stocks will fall two or three times as much as the market.

Stay safe