Strong ADP Report Should Attract Buyers Today
The market is treading water at the all-time high on light volume. It is not getting any help from financials or energy and the daily range is tight. Economic growth is moderating, but ADP came in better than expected this morning. Stocks look poised to grind higher today.
The official PMI’s this week where little soft on a global basis. The market needed a strong ADP report and it one this morning. The company said that 253,000 new jobs were created in the private sector during the month of May. This bodes well for Friday’s Unemployment Report. We need to consistently see job growth above 250,000 to justify a third rate hike in six months.
The Fed cited seasonal weakness in Q1 and they believe growth will pick up in Q2. This tells me that they plan to hike in two weeks. A single decent jobs report is not a trend, but it will calm nerves heading into the next FOMC meeting.
As I mentioned in my comments this week, initial jobless claims have been declining and the chances for a strong jobs report were good. If the Unemployment Report is above 250,000 we should see a nice market rally.
I still don’t like the backdrop. This year we have averaged less than 200,000 new jobs per month. That doesn’t even keep up with new entrants into the labor force. From this point forward we need to see robust economic growth on a domestic and global basis. At the first sign of trouble, investors will take profits.
I would also like to see broad-based participation in this rally. The last leg has been fueled by tech.
Politicians will take the summer off and tax cuts/reform will be delayed.
Swing traders should stay in cash. The downside risk is greater than the upside reward. Aggressive traders can buy SPY puts if the market closes below $240.60. Use $242 as your stop and only take a half position. I still believe we will see some profit-taking before the June FOMC. If the market is able to tread water through the statement and shoulder a third rate hike, I will consider overnight swing trades from the long side. Until then I won’t carry overnight longs.
Day traders should try to get long early in the morning today. Oil is up slightly and financials have a bid. The strong ADP report will attract some buyers. The likelihood of a rate hike in June is already priced in and the ADP report supports the move. If the market trades above the first hour high I will get a little more aggressive with my longs.
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