Daily Game Plan: Good Data, Ugly Action

Schaeffer's Investment Research
  DEC 07, 2012 4:30 PM

If you take a look at price action in both bonds and commodities today, that could be a clue that there is still an appetite for risk -- bonds have been sluggish all day while commodities have seen positive price action.

 


MARKET CHECK

At 8:30 this morning, the November nonfarm payrolls report was released, and the data was very good. Analysts were calling for the addition of 90,000 jobs for the month, but the actual number showed an increase of 146,000 jobs. Additionally, the headline unemployment number came in at 7.7% versus expectations of an 8.0% reading. As you could probably expect, markets spiked sharply on this data, with S&P 500 (INDEXSP:.INX) futures moving about 13 points in only a few minutes. However, the euphoria quickly waned, and that dramatic move higher has faded all day. As of 1:47 p.m. EST, the S&P 500 is up less than a point on the day.

A very popular mantra in trading is “Pay attention to the reaction, not the data itself.” Given this, today’s move lower after positive data isn’t a good sign for the bulls. However, the late-morning selling has abated, and the potential for a rally still exists.  If you take a look at price action in both bonds and commodities today, that could be a clue that there is still an appetite for risk — bonds have been sluggish all day while commodities have seen positive price action. I’d say markets are well balanced here, and both bulls and bears have an equal chance of taking control going forward. Trading is all about playing probabilities, so at least be cognizant of the fact that this could go either way.
 
CHART OF THE DAY

Iron Mountain, Inc. (NYSE:IRM) is a records management company that helps customers remain in compliance with specific laws. As you’ll see, the stock has seen quite the pullback, from nearly 36 all the way to under 31 today, in a matter of a little over a month. Despite the recent swoon, IRM is still up about 15% on the year. Today’s pullback level coincides with previous resistance seen in mid-2011, and this level could now act as support going forward. Additionally, the candle printing today is called a “dragonfly doji,” which oftentimes signals trend reversal and selling exhaustion. This looks like an opportune place to enter a long position with a stop below 30 and a target of about 35.



WHAT I’M EXPECTING

I remain stubbornly bullish. The intraday move today isn’t exactly comforting, but the path of least resistance for markets remains higher. It doesn’t appear as if we’ll break the recent range today, but there are plenty of opportunities for markets to do so next week. If we do breach 1385 on the S&P 500 to the downside, it will likely be time to flip bearishly.

This article by Bryan Sapp was originally published on Schaeffer's Investment Research.

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