Awaiting Employment

By Jani Ziedins | End of Day Analysis

May 01
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
It was a quiet day ahead of Friday’s employment report.  We stayed within a +/- 5-point range and closed flat for the day on light volume.  Today 1,880 acted as support and 1,890 was resistance.

MARKET SENTIMENT
It’s been years since the employment report had a lasting impact on equities.  While we often see intraday volatility, the last couple years the market has continued marching higher on both good and bad employment numbers.  Sometimes good was good and other times bad was good, but it never really mattered because within weeks the market was back to climbing higher.  Now that we are threatening to break 1,900 for the first time, will this one be any different?

As we hold near record highs in the face of slowing economic growth and turmoil in Eastern Europe, the market’s outlook is clearly “half-full” as it ignores the bad and embraces the good.  Recent volatility also did a good job flushing out weak hands and replacing them with confident owners willing to buy the risk.  While a beat or miss on employment might be the toss of a coin, the market’s reaction to it won’t be.  Either traders are looking for an excuse to sell, or they are looking for an excuse to keep holding.  No matter what Friday’s result, they will find a justification to do whatever they want to do before the numbers were announced.  Since the ball has been in the bulls court, expect the market to react more favorably.  Granted anything can happen within the volatile hours and days following the employment report, but after the knee-jerk reaction works its way through the system, most likely the bullish market will remain bullish.

TRADING OPPORTUNITIES
Expected Outcome: Pushing toward record highs but don’t expect a sustained breakout until the Fall
Bears are hoping Friday’s employment will save a losing trade, but if they don’t get their prayers answered, expect short covering to push the market higher.

Alternate Outcome:
Many are predicting an upbeat employment report and missing the mark will trigger a knee-jerk reaction of selling.  If the market crashes through key technical levels, expect the selling to accelerate.

Trading Plan:
There is not a lot to do here.  It is too late to buy and too early to short.  If the market implodes on employment, bears could try their hand at shorting, but be wary of a bounce and take profits early and often.  If we breakout to new highs, that is a better opportunity for bulls to lock in profits than initiate new positions.

Plan your trade; trade your plan

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.