Daily Commentary: October 04, 2024

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Strong Job Growth Fuels Market Rally

Posted by Pete Stolcers on October 04
www.oneoption.com

The jobs report was strong and the Fed is dovish.

PRE-OPEN MARKET COMMENTS FRIDAY – The Fed cut interest rates two weeks ago by 50 basis points and that was greater than expected. Asset Managers feared that the Fed could be seeing signs of economic weakness even though they said that was not the case during the FOMC Press Conference. Consequently, there wasn’t much of a rally after the rate cut. Buyers were going to wait for the economic releases this week.

Official PMIs in Asia and Europe were weak so it’s important to note that global activity is soft. On the other hand, US economic growth is very steady. ADP, JOLTs, Challenger, Initial Jobless Claims and the Jobs Report were all steady. This morning the BLS reported that 254K new jobs were created in September and that is well above the 147K that was expected. There were also upward revisions of 70K for the previous two months. Hourly wages were a little hot (.4% increase). This week ISM Services came in at a very strong 54.9. As a survey of Purchasing Managers, it is one of the most current data points and it is well into expansion territory.

As I’ve been telling you for months, we want strong economic growth and tame inflation. Higher interest rates are not stifling growth and the Fed has plenty of latitude to cut rates if needed. This is the best case scenario for the market. Ignore the “bad news is good news crowd”. We don’t want economic weakness and a Fed that is constantly having to cut rates in hopes of stimulating economic growth. That is a very slippery slope.

The market has had time to digest gains at the all-time high. The breakout held and now we are likely to see the follow through we have been waiting for. The key today will be volume. From a bullish standpoint we want to see a “Gap & Go” pattern on heavy volume with a new all-time high. This needs to be a bullish trend day with a close near the high of the day. This is the most bullish outcome. Some of you will chase this move and you will fear that you’ve missed the move. Settle down! Remind yourself that if this pattern plays out, it will be the beginning of a move higher and that there will be plenty of opportunities to trade from the long side. From a swing standpoint, I would add to starter positions on this pattern.

From a day trading standpoint, there will not be any bargains on the open. “Gap & Go’s” at a new all-time high are pretty rare when the market has been trending higher for weeks. That is not the case here. We’ve been compressing near the all-time high since August and a Cup & Handle has formed. There has been plenty of time for the market to digest gains along the way and it has been waiting for economic confirmation. The odds of a bullish trend day are pretty high (40%), but we need to be patient.

A dip in the first hour would be a gift. We want to see half of the gap preserved and AVWAPQ is at $570. That bid check needs to have mixed overlapping candles and it needs to be brief and shallow. This will give you a little time to find the best longs. You are likely to have a lot of alerts trigger so focus on those. You set them so you know those stocks have a good D1. Set alert lines at the high of the day during the first hour on strong stocks in the searches. The market has been sluggish since the Fed rate cut so buyers could still be cautious initially.

Another scenario that could play out is a compression near the high of the day for an hour. We would go through the remainder of the bullish cycle and a bearish cycle. If this plays out and the market is hugging the high of the day, the second bullish cycle will produce.

If we get the “Gap & Go”, there will be a dip mid-day. Wait for support and you will have a good entry point for day trades.

The news in the last two weeks has been bullish from a fundamental standpoint and the move higher is supported technically.

Support is at $570 (AVWAPQ) and resistance is at $575 (previous high).

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