Here Is Why the Market Is Down On A Strong Jobs Report – More Selling To Come
Posted 9:30 AM ET – The market is testing the recent breakout and this is a critical juncture. The QQQ closed below $182.80 yesterday, but the SPY bounced off of $287. A number of dark clouds are looming and Asset Managers are not worried about missing a year-end rally. If the SPY closes below $287 bullish speculators will get flushed out and we could hit a nasty little air pocket.
According to a Wall Street Journal article new Chinese tariffs could be announced in the next two weeks. They will not go into effect before the November elections. Other news sources suggested that an announcement could be made today so I view this delay as slightly bullish. It would make sense for Trump to “calm the seas” in the next two months. China wants to pressure Trump as much as possible and they will not sign an agreement before the elections. In fact, they would prefer that Democrats regain the House so that Trump’s agenda stalls.
A Wall Street Journal interview revealed that Trump might be considering tariffs against Japan.
Progress is being made with Mexico and Canada. NAFTA is important and Trump needs this deal.
Reuters reported that Trump will not shut down the government ahead of the November elections. The market has discounted this event so it won’t have much of an impact. However, it does mean that we don’t have to worry about getting blindsided by government shutdown tweets.
The Unemployment Report showed that 201,000 jobs were created in August. That was in line with expectations, but hourly wages increased .4%. That is “hot” and inflation could become an issue.
The Fed will be watching the wage component closely. It will increase rates on September 26th and some analysts were hoping that the word “accommodative” would be changed to “neutral”. That change would have signaled that we are close to the end of the tightening cycle. Today’s wage growth number makes that less likely and that is why the market is down on a strong jobs number.
Kim said that he wants denuclearization in North Korea before Trump’s first term ends. He can’t be trusted so the market is not reacting. At least the tone is positive. On the other hand, Iran’s rhetoric will escalate into November and we can expect increased naval operations in the Strait of Hormuz.
I’ve been mentioning this week that credit in emerging markets is an issue. Higher interest rates in the US will ripple across the globe. From my perspective, credit is the biggest threat to the current rally. There is no need to panic at this stage, but conditions are fragile.
Swing traders should stop out on the SPY at $287 on an intraday basis. We are likely to hit that level near the open. Our average price was $285 so we made a little money. We will sit in cash until these dark clouds part. The market is in a long-term uptrend and it is foolish to play the downside if you are not a day trader. The better swing opportunity will come on the long side when support is established.
Day traders should focus on the short side today. Support at SPY $287 will fail and bullish speculators will get flushed out. As long as we are below $287 favor the short side. Tech stocks have been particularly weak and that is where I will focus my attention. Short on bounces and take profits into weakness…. repeat.
Swing traders will go to cash and day traders will look for opportunities on the short side for the next few weeks.
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