US Stocks: Don't Buy The Dips, Sell The Rips

It started so well. The S&P500 mini futures (ES) climbed solidly in overnight trading Wednesday night. No bad news from China, because Chinese markets were closed. The Central Bankers in Europe were puffing up Quantitative Easing. Nobody declared war. The ES bounced 40 points from the previous close.

And then, and after all the scheduled US economic reports were released, the price started to slide. The high for the day (1973.50) was made at 11 o’clock and it was only down from there. The futures closed at 1946.00, 30 points above the previous close, but about 30 points below the high of the day. The decline continued in the early overnight trading.

Our trading strategy for Thursday was to sell the bounces. Turned out to be the right choice.

Today

The Non-Farm Payroll report, released in the pre-market, will be important today. The consensus estimate is around 200k, down a little from July. If the print is substantially better than that, traders will start to worry about a rate increase in September. Again.

We also have option expiration today, which will increase volatility, and we are heading into a holiday weekend, when senior traders leave early, and allow the children to play with the market. Could be choppy.

A triangle pattern is forming on the daily chart but the Bulls should not get enthusiastic about it. The Bears have defended their resistance levels quite well in the past five days and the upside momentum was weakening all yesterday afternoon, which could be a warning that the bounce is almost over.

Today ES needs to hold above the 1925 level to keep the upside momentum alive. A close below 1925 today could open the path to 1900-1898 or lower toward 1875 for next week. We will be watching the first couple of days after the holiday for a sense of direction.

Our trading strategy continues to be “short on bounce.” Don’t buy the dips; sell the rips.

The major support levels for Friday: 1900-03.50, 1850-45, 1828.50-25;
major resistance levels: 1992.75-95.50, 2012.50-2013.50 2032-2035

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