It’s All About the Jobs Number Today! Or, Is It?
Our S&P 500 Index forecast for yesterday – published before the markets opened – stated: “Aggressive, intraday models indicate the risk to the bulls, with a bearish spike down for the day”. The mainstream financial news media headlines for yesterday – after the markets closed – were explaining the markets’ “sharp drop” in various terms and with various theories.
Regardless of what the headline Jobs number can be interpreted as this morning, there is a confluence of a number of key price levels playing out in the markets and the price action today is going to be a battle along those lines! These factors include the options market positioning and expirations as well, and the S&P 500 Index is actually tracking the position sizes on the S&P 500 e-mini call expirations today!
Jobs number and yields are going to be used as a narrative for the commentary around these battle lines (those who have studied statistics have heard of this in their class rooms numerous times: “correlation is not causation”)!
Our models have declared “neutral bias” this week and continue to sport it until the indicated range is broken out of. It takes a major catalyst of fundamental nature to help the markets get out of this range-bound trading. Despite the headlines around the pop in yields and the markets tanking yesterday (20+ points drop in S&P 500 is hardly “tanking”), the index closed within the range we are monitoring and hence we are still in “neutral” territory. We are NOT in bear territory, yet.
Today’s NFP data are hardly going to put a dent in the markets. So, the potential catalyst that can move the markets beyond our range could be the seeming tsunami building up in the fixed income markets or the upcoming earnings season. Until then it could continue to be a choppy market with range-bound trading, making the bulls grow increasingly restless resulting in whipsaw moves up and down.
Model Biases/Outlook:
Considering that there are no major catalysts on the horizon (as of now) to keep driving the markets up to newer record highs or to push them down beyond the recent range lows, our models indicate a choppy, range-bound trading until the range is broken out of.
Our medium-term models have negated the recent “slightly bullish” bias and are sporting a neutral bias since Thu, 09/27. No bearish bias in sight until all the way below 2887. On the up side, our medium-term models are looking for a daily close above 2933 to turn outright bullish again.
Aggressive, intraday models indicate the risk to bears in the short term, with the recent drop potentially proving to be a bear trap! Caution is advised when shorting this market on prematurely declared “end” to the recent bull run!
A Brief Trace Back of The Current Bias/Outlook
On Friday, 09/07, our models had entered an “indeterminate” state and had negated their previous bullish bias, but had not adapted a bearish bias, yet. After reiterating this indeterminate bias for seven consecutive days, our models adopted a “slightly bullish” bias on Wed 09/19.
For Mon, 09/24, we continued this bullish bias, with a cautious stand about the gap-up on Thu 09/20. On Monday this gap-fill was attempted by reaching within 0.13 points – our models wanted to see it filled fully and published caution to bulls until that is seen. On Wednesday, 09/26, this gap was filled and the market closed down.
Thursday, 09/27, our models had negated the bullish bias and are adopting a neutral bias between 2933 and 2887. Despite the rise in the yields and the tight labor markets, and the much touted “sharp drops” in the markets, we reiterate this neutral bias for today, Friday 10/05, for the eighth day in a row.
Trading Plans for FRI, 10/05:
Medium-term/long-term Investors
The medium-term models have closed out the last position (a long) for a 12-point profit last week, opened at 2913 on Wed, 09/19 and have been flat since then (no positions).
The medium-term models indicate trading off of a widened range of 2933 and 2887 – would go long on a daily close above 2933 and go short a daily close below 2887, both sides with a 10-point trailing stop.
Aggressive, Short-term, Intraday, or Professional Traders
The aggressive, intraday trading plan for Thursday – published before the markets opened – stated: “For today, our agressive intraday models indicate trading off of the same range of 2932-2914 – the breakout/cross has to happen during the regular session (between 9:30am and 4pm) for this plan to be in effect“ (click here to read the full forecast and verify this claim)
The index broke below the 2914 level by 10:00am EST, triggering our models into a short position at the index level of 2914 with a 6-point trailing top. The index hit a low of 2883.92 by 2:15pm EST, where the trailing stop was taken down to 2889.92. This stop was tripped within the next 30 minutes, thus closing the short position with a profit of 25 points for the day! Yep, a big win, by any standards, for a mechanical system’s trading with predefined entry and exit points on a day where markets went through a wild ride!
For today, our agressive intraday models indicate trading off of the range of 2915-2884. If the index crosses above 2915 during the regular session, the models indicate going long with a 7-point trailing stop; if crossing below 2883, going short with a 5-point (different from the long) trailing stop.
Remember that a “trailing stop” works differently from the traditional stop-loss order. Please bear in mind that the trailing stop’s trigger level would keep changing throughout the session (click here to read on the conceptual workings of a trailing-stop).
IMPORTANT RISK DISCLOSURES AND NOTICES – READ CAREFULLY:
(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.
(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely
at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.
(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.
(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.
(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.
(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.