Dead Ahead

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The title of this posts is a double entendre – – for one thing, as we all know, Friday morning's job report is going to be a market-mover. Last month's disappointing job report briefly dropped the market down hard, but that preceded a pretty hearty rise upward. It'll be interesting, to say the least, to see what happens with tomorrow's Census-deprived figures.

The second reference is that next week is pretty much dead. It's a holiday week; the market is closed Monday. And there isn't a single market-moving report coming out. As July wears on, earnings will start coming out, and the (ugly) truth of the economy will begin to reveal itself.

Iggy has done a couple of comments that I thought were real gems. The most recent one was a Jeff Foxworthy-style "You should keep your day job if…" that was pretty funny. But the one I really liked described how, once you stripped away all the time-based reasons to avoid trading ("It's OPEX week; it's pre-OPEX week; it's FOMC day; it's jobs report day; it's a full moon; it's a new moon, etc….") there would be about 2 days of the year left.

How true! It gets really tiresome hearing how such-and-such an event has anything to do with the markets. To my way of thinking, there is one and only one big event these days to look out for, and that's the jobs report. There was a time that the FOMC was a big deal, but with interest rates at 0%, all the drama around FOMC is a ridiculous exercise in figuring out if a semi-colon in the press release was added, and what the new punctuation might mean to Fed policy in the future.

Here, incidentally, is a snippet from an article I just read on MarketWatch. I'l let the quotation speak for itself:

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Today went well for me. I was able to make more in percentage terms than the S&P lost, and that is what I call a successful day. I was actually up much more early on in the day, when things seemed to be coming to pieces, but I still managed to secure a good day with some very well-timed trades in IWM (long, both times), GLD, and AFAM.

At the moment, I am almost totally short, with two notable exceptions – – GDX and XLE.

I have a large long position in GDX simply because I think the precious metals sell-off is overdone, and the GDX chart is pressed beautifully against its ascending trendline. That position is already nicely into the green, and it's comforting that the closing price of GDX was a reasonable amount off the lows of the day. I don't think GDX is going to break into the stratosphere, but I do think a relief rally could yield some generous profits.

The reasoning on XLE  is similar – – the energy markets seem really (here comes that word again) oversold, and looking at the DUG chart convinced me that the energy markets were about to turn around.

In any case, if tomorrow's jobs reports, for whatever interpretation, creates a ripping rally, it'll be a down day for me, since I'm tilted heavily bearish. My two longs above will help reduce the pain, but I want it known that I am positioned for downward movement.

I do recognize the risk of a push higher, however, and I will get into some more large long positions if it's clear we're going to get a bounce. The /ES could push to 1075 without altering the bearish outlook one bit.

As I mentioned earlier today, the incredible rally in the Euro didn't seem to be much of an aid to equity or metals bulls at all. If I were a metals bull looking for a soft U.S. dollar to fuel a bounce, boy, would I be fuming. Instead, I was short GLD (my largest position) at the opening today, and I covered for a nice profit. A look at the EUR/USD implies a push to 1.3 before a resumption of the fall is in the cards.

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Things have happened so fast, it's easy to lose perspective, but consider this: the tumble we've seen over the past two months took seven months to build (from September to April). The NASDAQ Composite, as an example, is back at the level it was at in September of last year. This is a fine example of how bear markets operate at much faster speeds (in this case, over three times as fast) as bull markets.

I obviously have no idea what Friday is going to be bring, but I am confident of one thing – – between now and October, we're going to see the Dow in the 8000s…..around 8250 to 8500 I would imagine. Whether that happens in the next few days (doubtful) or the next few months (to my mind, a virtual certainty) remains to be seen. But the equity market is very broken, and I think a hearty bounce will mean nothing more than new shorting opportunities at better prices.

Picture 3

Good luck – – everyone, bulls and bears alike, are going to need it. 

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