Panic Sets In

So the world is a dangerous place and we do not live in a perfect world, at least that is what the market says today. The worst day for US stocks since February the 3rd, the Dow Jones closing down 317 points and the S&P down 39 points and sits just above 1930, it was just a few days ago where 2000 looked imminent. Last week I got a laugh from an analyst response to why the stock market was reversing its 1% losses from the previous day, "it's real simple folks, this market just does not want to go down". I wonder how this guy feels today, please see what he did with $1,000,000 just yesterday
http://www.cnbc.com/id/101880192

Hey, one day does not make a trend, all he needs is a little help from the FED and his trade will be just fine. How about watching all of the summers gains go down the tubes in just one day! With the action today July actually put in the first losing month in the US stock markets in 6 months. I have been warning that when this thing ends it will not be pretty, hey maybe this is not the end but today should serve as a warning shot!

We can come up with 100 different reasons for all the chaos but I would like to focus on tomorrow and the non-farm payroll number. Yes the media always hypes up this number each month but tomorrow's number is the biggest number we have had in years. The number is expected to show 232,000 jobs were created for the month, last months number was 288,000 and that was a huge upside surprise and the unemployment rate dropped to 6.1%. With the headline number at 288,000, it started to get the markets thinking that the FED is going to have to raise rates much sooner than what they had been leading on to. Notice I use the word HEADLINE, there are other details that were not so strong, such as the labor participation rate being at the worst levels in almost 40 years, hourly earnings, wage increases and more people are working part time jobs. Like Janet Yellen is quick to remind us, there is still slack in the labor force that needs to be watched closely.

As for the number on Friday morning, if it comes in better than expected or the unemployment rate should drop below 6%, the US Dollar and the 10 Year Note will indeed have more to gain on the upside. I am going to post a chart on the US Dollar today and you will see where it is as far as resistance is concerned.

Notice that on a day like today with equities plunging, the dollar basically took the day off from trading. Not really, currencies trade 24 hours a day, yesterday the dollar closed at 8149 just below major resistance, today we closed slightly above at 8153. Currency and bond traders will wait for the job number for the next major move. The dollar will fail here with a weaker job number or it will simply plow through resistance and it may be the start of a true rally in the US currency.

Same goes for the 10 Year Note, and this is the market that everyone will be keying in on. A big reason for stocks to be in panic mode is the fact that the rate on the 10 Year was just 2.45% Wednesday morning and traded above 2.60% this morning settling at 2.55% to end the day. A breakout above 2.63% and rates should be headed higher for US bond markets. I have written about this market not too long ago and showed how confident I was that the trend line on the weekly chart would not be broken to the downside and I have been proven correct for the time being! Remember, falling bond prices indicates rising rates and rising prices means that rates are falling. Here is what the  weekly chart looks like now with the trend line in tact, for now!

Both of these charts should look completely different after the close of business Friday afternoon. Again, DO NOT try and guess what this number will be, smart traders will wait for the number and give the markets a bit of time to digest all the details of the number. I personally have learned it is best to wait almost 20-30 minutes before taking a trade after the release of this major report.

As for Gold, currently we sit above major support at 1280 trading at 1284. Good jobs, stronger dollar and higher rates will be bad for Gold. A weaker number will send the US dollar lower, rates lower and we could have a great buy in Gold. Your guess is as good as mine!

Lastly, Oil did get crushed for more than $2 today, trading below 98, currently at 9795 as I finish this post. Again, if demand is weak and the economy is not what the value of the stock market has been telling us, Oil may indeed be heading much lower.  The next levels to watch for support would be 9750 and then 96.

Traders, be smarter than the next guy or gal, don't try to be a hero. Someone said this and it stuck with me " there is a whole loaf of bread down there, all I want is a few crumbs". That is a good approach to take when trading these markets, its all about discipline!

Thanks for reading
TraderMartin