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Market Rallies After Big Jobs Report - Watch ISM Services

Posted by Pete Stolcers on May 3

Posted 9:30 AM ET – Yesterday the market saw some follow-through profit-taking after the FOMC statement on Wednesday. Support at SPY $291 held and stocks are up before the open. This soft patch has run its course and the market should continue to grind higher.

The Fed is dovish, but they did not signal a future rate cut. That sparked some profit-taking – the market always wants “more”.

Global economic conditions are weak. All of the major economies have PMI’s that are straddling the contraction level of 50. Some are slightly above and some are slightly below. Many traders are betting that the worst is over for China and that their economy will start to grow after a major fiscal and monetary stimulus. That theory did not bear out in China’s PMI this week (slight decline to 50.2). As long as global weakness does not spread to the US, investors will own stocks at this level.

ADP reported strong job growth and 275,000 new jobs were created in the private sector during the month of April. This morning’s jobs report showed that a whopping 263,000 new jobs were created. That was a big beat and hourly wages increased a tame .2%. ISM manufacturing dropped to 52.4 earlier this week and that was much weaker than expected. This morning ISM services will be release 30 minutes after the open and it will be an important number.

Trade talks with China continue to bear fruit and many insiders believe that a deal could be struck by May 10th. If true, this news could be worth 25 S&P 500 points. US negotiations with Europe and Japan will start and a deal with China will put pressure on them to find middle ground. Tariff rhetoric will ramp up if talks are unproductive.

Earnings have generally been good, but not good enough to fuel a rally through the previous all-time high. With mega cap tech out of the way sellers will get a little more aggressive. The back half of earnings season will lack punch.

Swing traders are long SPY at $293. We are going to place a closing stop at $291. The soft patch has run its course and we should grind higher for another week or two. We will set an initial target at $295. As the market moves higher we will adjust our stop and target.

Day traders should wait for the bid to be tested. Once support is established buy stocks with relative strength. We are using Option Stalker searches to find these stocks.

Look for a grind higher the next week on light volume. The news is going to really slow down and that favors the uptrend.
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