Daily Commentary: September 06, 2024

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Tread Cautiously – Jobs Number Not Great

Posted by Pete Stolcers on September 06
www.oneoption.com

We don’t trade what we think, we trade what we see. Watch VIX and the 50-day MA.

PRE-OPEN MARKET COMMENTS FRIDAY – The market is constantly looking for the next “driver” that will break us out of this trading range.

This morning we learned that 142K jobs were created. That number was just shy of the 160K that was expected. However, the prior two months were revised downward by 85K. This is not great news, but it does pave the way for the Fed to cut rates by a quarter point on September 18th. Here’s the rub. Wage inflation came in at .4%. That is the highest input cost for manufacturers and higher wages are inflationary. Wages actually increased .7%, but because the average weekly hours worked decreased by .3% the number appeared to be “not as bad”. Less hours worked and higher wages are not a great combination. This will provide a headwind for Fed easing.

So why is the market rallying after the number? I am not going to play Jr. Analyst. The market is going to go where it wants to. Our job is to read price action and not to pretend that we know more than the market does. Here’s the game plan.

  1. Watch the 50-day MA. If the market can get above that level and hold it, we are going to bounce. If the market hits resistance at that level, we are going to roll over. Overseas markets were soft overnight and the S&P 500 was down 35+ points before the jobs report. Now it is testing the 50-day MA and it recovered the overnight losses.
  2. Watch VIX/VXX. If it is steady to higher this morning, it will be a sign that the early rally is going to reverse. If VIX/VXX back off quickly, it will be a sign that the market wants to grind higher.

Given the overnight price action I would observe the price action the first 30-45 minutes. There will be a bid check, I just don’t know when it will happen. I suspect it will come early. From a bullish standpoint we want to see a sluggish test to the downside early. Watch for mixed overlapping candles with tails. We want to see the 50-day MA hold firm and we want to convincingly bounce off of it and take out the high of the day. That would set us up with a grind higher. If the early bid check features instant stacked red candles and we easily drop below the 50-day MA with a rising VIX/VXX, that would be a sign of a bearish gap reversal and you should favor the short side. If the market grinds higher right out of the gate, I would be very skeptical. Mixed overlapping candles would be a sign of resistance. Then you would want to watch for a bearish engulfing candle or a bearish hammer off of the high of the day. I would not buy into a gap and go this morning. I don’t feel the need to chase and the rug could get pulled out from under us. If the price action is strong from the open and I wait patiently, I will be able to confirm the strength. There will be a pullback at some point and that will provide me with an opportunity to join the rally.

That’s how I would trade it.

Support is at the overnight low and the 50-day MA. Resistance is at SPY $555.

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