Make or Break?

Up, Up and then Doooown. That’s the simplest way I could define the stock market’s pattern these days. Should the markets attempt another move higher, which could be sparked by today’s release of the Nov. unemployment report, initial resistance should be at the Nov. 28 reaction high at 8831 for the DJIA, 896 for the S&P 500 and 1535 for the NASDAQ. Still, the strength needs to be demonstrated by strong volumes.

I have been cautioning OPN subscribers time and is what I wrote y’day…

Doubts abound in these “last few hrs rallies”. Barron’s confidence index continues to fall amidst these rallies jobless claims, I have my doubts on govt statistics… market breadth isn’t significantly positive when compared with obvious rallies…is this advance that started from Nov 20 coming to an end soon? more and more questions than I can find answers…still on sidelines..”

Y’day, The Dow gave up over 300 pts in last hour before recovering alomost 100points in last 6mins. The slide primarily was due to, I think, traders wanting to move to the sidelines ahead of today’s employment report. Treasuries are yielding multi-decade low (currently -0.106 at 2.570%), representing a continued move into safe haven assets. This is also reflected in “Barrons Confidence Index”.

The biggie today is the job’s report. Nonfarm Payrolls is expected to drop ~330K. Markets have been handling negative economy data quite well for the past few days. We have seen selling pick up ahead of economic releases over the past few days (ahead of the Beige Book, ahead of initial claims data), which often results in a positive reaction to poor economic data. The number will have to be worse then expected with severe downside revisions to previous months to trigger a sharply negative reaction in stocks. A surprise smaller than expected decline in payrolls could spark rally. It is anyone’s guess as to how the data will turn out and how the market will react to it, but with a late day deterioration ahead of the data, the market might have already priced in some bad news.

In the unusal options trading section, HANS Dec calls saw interest probably due to renewed KO-for-HANS takeover speculation. SBUX Dec 10 calls saw heavy interest around midday. PCLN Jan’09 70 calls also saw heavy activity where 12.8K contracts exchnaged hands vs. 1.1K open interest. Other notable call was CAT Jan’09 45 calls 11K volume vs 3.8K open interest.

These days markets needs to watched almost daily. It seems as if every other day is a record day. While thinking about market actions, here is an interesting chart worth pondering to review rate of returns for common stocks purchased by the Treasury from financial institutions.

Trade Carefully, Profitable Trading, OP





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