Buzz on the Street: May Jobs Report Anticlimactic After Volatile Week
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Friday, June 7, 2013
The Bruce Lee Market
Don't get set into one form, adapt it and build your own, and let it grow, be like water. Empty your mind, be formless, shapeless - like water. Now you put water in a cup, it becomes the cup; you put water into a bottle, it becomes the bottle; you put it in a teapot, it becomes the teapot. Now water can flow or it can crash. Be water, my friend.
- Bruce Lee; martial artist, actor, film maker
Recently, this has been the Bruce Lee stock market in that you have needed to be "water" in order to flow with the movements of the stock market. This week that movement has been downstream with a decline of ~5.3% from the intraday "high" of May 22 to yesterday's intraday "low;" and quite frankly, I really did not expect this week's 2 ½ session downside two-step that took the SPX to its 50-day moving average (@1605) where it found support (although the ensuing bounce came on very low volume).
Yesterday morning's Dow Dive began overseas when Mario Draghi suggested more monetary easing was not in the cards. Subsequently, the ECB left interest rates unchanged leading to the euro's rise against the U.S. dollar, which pressured U.S. stocks early in the day's trading. Adding to the Dow's consternations was a "flash crash" in Japan, while Italy also took a "hit" of 2.6%. The cacophony crested with the senior index shedding about 116 points into the lunch hour, leaving the NYSE McClellan Oscillator more oversold than I have seen it in a long time (see chart). And just like pressing down a spring produces a big bounce-back, a compressed McClellan Oscillator produced the same result for stocks Thursday afternoon. This is what I discussed in yesterday's Morning Tack in that the market typically gives investors a second chance to be intelligent with their portfolios. The inference was you do not sell stocks when they are as compressed as they were early in Thursday's session.
This morning, all eyes will be focused on the NFP employment numbers, which should set the tone for the stock market's next move. If the NFP numbers are favorable, yesterday's upside reversal should gather steam. If we rally back towards the recent highs, and fail to make higher highs, then my mid-July point of vulnerability will get moved close to now. If, however, we do make higher highs, the aforementioned scenario should play. That scenario called for higher highs into July and then the potential for the first serious decline of the year. And make no mistake, if that July swoon occurs, I think it will be a swoon for buying because I believe stocks will be higher by year end. Interesting, one would expect the recent winners to be sold in the pullback since the May 22 downside reversal, but that is not what has happened. Indeed, the stocks that have been the biggest winners YTD have held up the best! Surprisingly, the stocks that have been sold are the higher dividend payers, which is NOT what usually happens on a pullback. Also of interest is that companies generating the highest percentage of revenues outside the U.S. have outperformed their "domestic revenue" brethren. Indeed, "Be water, my friend!"
Hedges On: Is It Time for the 50 day dance?
I'm adding my hedges back here as we test the 1636-1640 level. A little too deep into that area for my liking, but we can't always get what we want. It may be time for the market play around near the 50-day moving average as bulls and bears fight it out for the next 5% move. Bears will get aggressive lower, and bulls will get defensive. I expect whippy action the closer we get to the 50-day moving average. I will hedge up into the downtrend line and take them off "in the hole". Stops are above the old lateral resistance and down trend highlighted in the chart. Good luck and happy Friday!
How to Trade The Rest of the Day
On the SPDR S&P 500 ETF (NYSEARCA:SPY) we have a classic gap open. All day we have traded above the intraday DMA Channel (yellow band). We are well above resistance (red) so do not think about shorting here.
The most important line for today now are the one hour ranges. You might want to be cute and try and scalp a break of the one hour high (light blue line) or wait for SPY to trade under the intraday DMA Channel. Typically, a day like today ends with more strength. You have been warned.
The dashed lines are the 5-minute range. Pivot is magenta. Support is green. Aqua is prior day two hour high. Brown is the prior day two hour low.
Click to englarge
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