As I’ve been expecting and writing about quite often, we have been downtrending back to the bottom of the trading range on macro and European concerns. I expect more of this to continue, but the easy money shorting has been made. This means we are more susceptible at these levels to strong bounces, but with the overall momentum to the downside, these bounces are likely to see bears attempting to short it to create further pressure and momentum to the downside.
I’ve identified three major support levels in this trading range and we are right at the first one (see chart below). Below 1101 in the S&P 500 (SPX) would create a fear-driven washout that could set us up for a bullish year-end rally. I would not mind this as it could create a longer bull trend if we go down first than if we were to rise from here. Capitulation is what the market seeks to rid the bad blood and sentiment, but when will we actually see it? I’m excited to get it done so we can put it in the past.
This week we have Nonfarm Payrolls and other important job data (see below) that will be a main focus of all the macro data. As usual, European concerns will also dominate the headlines. Greece just approved a budget that is short of the deficit target. This means we could see further concerns that they will not receive their next aid tranche and our markets would likely see more pain from that as the dollar rises in strength.
| Date | ET | Release | For | Actual | Briefing.com Forecast | Briefing.com Consensus | Prior | Revised From |
|---|---|---|---|---|---|---|---|---|
| Oct 03 | 10:00 | ISM Index | Sep | 50.0 | 50.5 | 50.6 | ||
| Oct 03 | 10:00 | Construction Spending | Aug | -0.6% | -0.5% | -1.3% | ||
| Oct 03 | 15:00 | Auto Sales | Sep | NA | 4.1M | 3.97M | ||
| Oct 03 | 15:00 | Truck Sales | Sep | NA | 5.5M | 5.43M | ||
| Oct 04 | 10:00 | Factory Orders | Aug | -0.3% | -0.1% | 2.4% | ||
| Oct 05 | 07:00 | MBA Mortgage Index | 10/01 | NA | NA | +9.3% | ||
| Oct 05 | 07:30 | Challenger Job Cuts | Sep | NA | NA | 47.0% | ||
| Oct 05 | 08:15 | ADP Employment Change | Sep | 50K | 48K | 91K | ||
| Oct 05 | 10:00 | ISM Services | Sep | 52.0 | 53.0 | 53.3 | ||
| Oct 05 | 10:30 | Crude Inventories | 10/01 | NA | NA | 1.915M | ||
| Oct 06 | 08:30 | Initial Claims | 10/01 | 400K | 401K | 391K | ||
| Oct 06 | 08:30 | Continuing Claims | 09/24 | 3700K | 3725K | 3729K | ||
| Oct 07 | 08:30 | Nonfarm Payrolls | Sep | 50K | 63K | 0K | ||
| Oct 07 | 08:30 | Nonfarm Private Payrolls | Sep | 90K | 90K | 17K | ||
| Oct 07 | 08:30 | Unemployment Rate | Sep | 9.1% | 9.1% | 9.1% | ||
| Oct 07 | 08:30 | Hourly Earnings | Sep | 0.1% | 0.2% | -0.1% | ||
| Oct 07 | 08:30 | Average Workweek | Sep | 34.3 | 34.2 | 34.2 | ||
| Oct 07 | 10:00 | Wholesale Inventories | Aug | 0.5% | 0.6% | 0.8% | ||
| Oct 07 | 15:00 | Consumer Credit | Aug | $7.0B | $7.0B | $12.0B |
Above is the week’s economic calendar. Again, the main data that will be focused on is the Nonfarm Payrolls at the end of the week. I don’t expect bullish data, but I wouldn’t gamble aggressively on bad data as this far down in the trading range could see very large enthusiastic bounces that could create significant pain for anyone overly short here. I’m net short in my portfolio, but dramatically reduced all positions to reduce my risk at the end of last week. You can read these updates and more as I make them on my SeekingAlpha StockTalks, which are followed by over 36k market players. So, sign up for free and follow-me (shameless promotion!). If we break below 1101, you’ll likely see me adding shorts aggressively via long ProShares UltraShort S&P500 (SDS) or ProShares UltraShort Russell2000 (TWM).
Tread careful again this week as risk is high and volatility is about the only thing we can bank on. Play cautious now and don’t rack up losses, someday in the near future we’ll have a better market to be more aggressive in.
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As always, do your own homework to see if you agree. Good luck out there.
Mike
At the time of publication, Kudrna was long SDS, but positions may change at any time
