The S&P 500 is within striking distance of the all-time high and huge job losses in the private sector during the month of July did not dampen spirits. Politicians continue to haggle over a $1.5 trillion stimulus package and they are likely to reach an agreement at the final hour. The macro backdrop is uncertain and I feel that the upside rewards are smaller than the downside risks.

ADP reported that 167,000 new jobs were created in the private sector during the month of July. Analysts expected 1.6 million new jobs. The virus hit job intensive industries the hardest and these businesses have been slow to recover because of the second wave. Initial jobless claims were released this morning and they increased by 1.19 million. That was better than the 1.40 million that was expected and the S&P 500 rallied 10 points on the news. Analysts are expecting 2 million new jobs when the Unemployment Report is released tomorrow.

Politicians are haggling over a $1.5 trillion stimulus plan and it is much smaller than the $6 trillion plan in May. Small businesses that had a decline in revenues of 50% would be eligible for new PPP loans. We are likely to see an airline bailout and the President has expressed the importance of keeping the transportation industry intact. Trump intends to use his executive power for an eviction moratorium through year-end if Congress can’t agree on a stimulus deal. It’s not certain if he has the power to do that or if anyone will challenge it. As many as 23 million people could be evicted from their apartments in October if action is not taken. Republicans want to reduce the federal supplement to unemployment benefits from $600 per week to $400 per week. Democrats want to leave it where it is. Perhaps the biggest disparity is in state and local aid. Republicans are offering $200 billion in aid, but Democrats want $1 trillion. This bill will go down to the wire, but it will be signed. Neither party wants to look like the bad guy this close to the election. I believe the market has already priced in a stimulus package that ranges from $1 trillion to $1.5 trillion.

Goldman Sachs believes that the chances of an approved Coronavirus vaccine by the end of November are underpriced by equity markets and this might explain part of the rally. There have been many biotech companies with positive Phase I and Phase II clinical trials and there have been many positive developments.

US/China relations continue to deteriorate and technology bands on Chinese apps are being considered. I don’t see this trend changing ahead of the election.

More than three quarters of the S&P 500 companies have reported earnings. On average, revenues are down 11.5% and profits are down more than 33%. The expectation is that Q3 will benefit from pent-up demand and I believe that is overly optimistic. The Coronavirus has caused many states to retreat to Phase 2 and Phase 3. Consumer spending will be relatively light as workers question their job security. The back half of earnings season will feature some of the hardest hit companies and I believe that we could see profit-taking.

After the jobs report tomorrow, the economic news will come to a screeching halt. Earnings season will wind down and the trading volume will be very light. Once the stimulus bill is passed, politicians will flee the capital and investors will get nervous when no one is minding the shop. August tends to be seasonally weak.

Swing traders should stay in cash. I believe that we will have a better entry point in the next few weeks. That could come after a market decline or it could simply mean that stocks tread water and that we have better information on how all of this is going to play out. I believe that the weekly initial jobless claims number is a critical data point to watch. The number this morning was better than we’ve seen the prior three weeks and that is slightly encouraging. Mind you, more than a million new applications for unemployment benefits is not a small number.

Day traders should favor the long side and we can continue to milk the last leg of this rally by keeping our trades short-term. The market gains from yesterday are holding and the S&P 500 rallied 10 points after the initial jobless claims number this morning. In the chat room we’ve been focusing on post earnings plays and tech stocks that are breaking out on a daily chart and that have intraday relative strength. The 10-day average true range (ATR) for the S&P 500 is 40 points and yesterday the range was only 12 points. Intraday volatility is likely to decline and I am using half of my normal size in the morning and a quarter of my normal size in the afternoon. If the market is able to get above the prior day’s high and if it is above the high of the day, you can get more aggressive with your longs. If the market is inside of the prior day’s range and inside of the first hour range you need to be very selective.

Try to take some time off in the next two weeks if you are day trading. The dog days of summer lie ahead.