Daily Commentary: September 05, 2023

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Bad New Is Bad News?

Posted by Peter Stolcers on September 05

The reaction to the jobs report Friday could be a sign that investors are worried about a recession.

PRE-OPEN MARKET COMMENTS TUESDAY – Last Friday the market got a “Goldilocks” jobs report. It was “not too hot and not too cold” and hourly wages dropped to .2% easing inflation fears. Right when it looked like we might get a “gap and go” rally and another leg higher, sellers smacked the opening rally down. The market dropped to the low from Thursday and it never recovered. This price action is a reminder that sellers are close by.

There was not a lot of news over the weekend. Services PMIs were a little “light” across the globe. Today we will suffer from a “holiday hangover” and the action will be dull.

From a technical standpoint, this is a critical juncture. Bulls want to see a small drop that does not quite get down to the 50-day MA and that bounces. That would leave a bullish hammer above that support level and it would indicate that buyers are aggressive. It would set the stage for a nice rally that could test the 52-week high. Bears will be looking for a drop that does not bounce and that breaches the 50-day MA. That would confirm resistance and it would result in a lower high double top. If this scenario plays out, we will test the 100-day MA.

August and September are seasonally weak months so that favors the short side. The Fed has stated that they do not believe they can tame core inflation without an economic slowdown. I believe the greatest market threat is a weak round of economic data points. Investors will worry that the Fed has gone too far. Higher interest rates are going to curb consumer spending and they will take a toll on big ticket items.

I am market neutral. One thing is for sure, which ever direction prevails, it is going to be a stubborn move with lots of retracement and mixed overlapping candles. Buyers and sellers are engaged. There is no need to guess the outcome. Wait for a breakout or a breakdown and then favor that side.

The action today is going to be dull. Traders will just be returning from the long weekend and the news was light. Europe was flat and Asia was down overnight so there is a slight downward bias. 1OP will start the day on a bearish cycle and the SPY is going to test the low from Friday. If the market can break that low on the first attempt, it would suggest more downside early today.

One takeaway from the price action Friday is that “bad news might actually be bad news”. That was a perfect number and the fact that the market did not rally tells me that recession fears could be looming.

The 50-day MA is very significant. That level is also AVWAPQ, horizontal support and it is the halfway point for the long green candle from last week. A strong bounce off of it would be bullish and a convincing breakdown would be bearish.

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