May 7 Market Wrap — Bullish follow through (so far)May 07 2015 20:04
There's very little to add to what I covered in last night's wrap and this morning's updates so this will be a short update. The bulls got their follow through this morning (after a bit of hesitation and a new overnight low in the futures) and that makes Wednesday's lows important for the bulls to defend. Assuming we'll get the rally to a new high next week it's anyone's guess how it will play out and it could be a tricky time for day traders. We need to get through the volatility surrounding tomorrow morning's pre-market release of the NFP and other employment data to help determine if today's rally was just a dead cat bounce or the start of something more.
Today's rally for SPX got it back above its 2009-2011 uptrend line, leaving a head-fake break yesterday. But it only closed marginally back above its 50-dma, which stopped Wednesday morning's quick spike up, currently near 2089, and it would obviously look better for the bulls if SPX can clear that resistance level and then get above its 20-dma near 2101. It stays bullish above Wednesday's low near 2068 but it might not be a smooth ride.
The rally off Wednesday's low is so far a 3-wave move, as I had mentioned in today's 2nd update. I mentioned we could get a 5-wave impulsive move up if we get an afternoon consolidation followed by another poke higher. We did get an afternoon consolidation that did not overlap the 1st wave high in the bounce (the first high out of the gate this morning) so it remains possible we'll get the poke higher Friday morning (positive reaction to the NFP report) and then a pullback to correct the rally from Wednesday. The pullback following a 5-wave rally would be a buying opportunity but even if we first get a pullback in the morning (negative reaction to the NFP report) it should be a buying opportunity if the larger pattern, calling for a rally into next week, is correct. That's the assumption I'm going with until price proves me wrong. From a trading perspective it's looking like you should look to fade the early-morning move.
The bottom line is that we should be looking for buying opportunities (for a trade) for what should be one more rally into next week. Just understand the downside risk and how we could wake up to a nasty surprise. How the rally unfolds is the big question but assuming we'll get it, and how it develops, I should be able to get some good upside target prices for us to watch for (currently it's about 2132). For now I'd stay conservative in your trading and worry more about return of capital rather than return on capital.
I'll be able to provide a morning update tomorrow (to see how the market reacts to the employment reports) but then I'll be hitting the road to get back to Seattle (from Sandpoint, ID). Normally it's about a 6-hour ride but I'm on my bike and I'll be taking the scenic route through the mountains in the northern part of the state. That will turn it into a 10-hour ride but what a beautiful ride and it's supposed to be gorgeous weather. However, in the mountains I will have spotty phone service at best and checking on the market will be a challenge. So I'm sorry about that but what can I say except that the mountains are calling me.