How to trade the monthly employment report

Free After-Hours Analysis: 

The S&P 500 slipped 1% Thursday in a mirror image of Wednesday’s resilient price action.

Instead of opening weak and climbing all day, the index started Thursday strong and spent the rest of the session skidding lower. Wednesday was half-full and Thursday half-empty. And so continues the swinging pendulum of sentiment.

Friday morning we get the monthly employment report. While normally a big deal, this one is building up to be especially important as it decides what comes next, either extending this week’s rebound or resuming the September selloff.

As volatile as the market has been, whatever happens Friday morning, the resulting move will almost certainly be large and enduring.

Odds favor a rally since we’ve gotten a whole lot of down since the August highs and bearishness remains near all-time highs. That skew gives us a truckload of fuel to propel a rally higher. But as is always the case, selling begets selling and few things shatter confidence like screens filled with red, so another waterfall of selling is always possible.

While I have a natural bullish bias and think the latest wave of selling has taken us a little too low, I’m happy to ride the next wave in whichever direction it takes us.

I don’t trade the initial knee-jerk reaction to a big headline event, but 30 minutes later and the market cannot help but reveal its hand and there is nothing for us to do except jump aboard and hang on. Up or down, I’m game either way.

I’m still hanging on to a portion of my long positions from Monday’s rebound, but Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report.

As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.

But as soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.

Buying this week’s rebound early and sitting on a pile of profits makes this a win-win situation for me.

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