The market has tried to break through resistance at SPY $162 twice this week and it has failed both times. In yesterday’s comments I suggested using $162 as a stop and you should be out of all of your call positions. Trading volumes will decline during a holiday abbreviated week and major releases are pending. The reward is not worth the risk.
Official PMI’s were mostly in line. China was a little light, but nothing too concerning.
ADP came in at 188,000 and that was much better than expected (150,000). Traders will lean on this number and the expectations for Friday’s Unemployment Report will ratchet higher. ISM services will be released 30 min. after the open and they should come in just below expectations (54).
The market is still struggling to embrace good economic news. That will change over time and we need to see steady improvement.
European credit concerns are starting to surface. Portugal’s 10-year yield rose above 8% when two finance ministers resigned. Greece is trying to patch an $8B hole in its budget. I don’t see anything too alarming, but conditions can change rapidly. The ECB will release its statement tomorrow and it should be dovish.
Unrest in Egypt is also weighing on the market. Millions of people are protesting and there is a political divide.
After the first hour of trading, volumes will fall off. Option implied volatilities will decline and time decay will kick in. Most traders will take Friday off and the reaction to the jobs report will be minimal. Risk will be adjusted early today. The market closes at 1:00 PM ET.
There is absolutely no reason to carry a position. We’ve had a great run and you should be on the sidelines.
The price action looks soft this morning. If buyers put their wallets away, we could see a constant drift lower. This is exactly why I suggested getting out of call positions yesterday if $162 did not hold.
The market should have been able to bounce higher than $162. It was not able to and that is bearish.
Earnings season kicks off Monday and that will provide an additional source of information.
Take time off and celebrate the birth of our great nation with friends and family. We will catch the next move when trading gets back to normal in a week.
Happy 4th of July!