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Powell Lifts the Market - This Is Only A Bounce

Posted by Pete Stolcers on June 5

Posted 9:30 AM ET – Yesterday the market staged an impressive bounce and the S&P 500 rallied through the 200-day and 100-day moving averages. Fed Chairman Powell is dovish as global economic conditions continue to deteriorate. Major economic releases are scheduled today.

ADP reported that 27,000 new jobs were created in the private sector during the month of May. That is well below the consensus estimate of 170,000 and there could be a kink in the armor. US growth has been strong relative to the rest of the world. ISM services will be released 30 minutes after the open and it will be an important number. ISM manufacturing slipped to 52.1 on Monday. Investors have been content holding equities as long as US economic growth is strong. These could be the first signs of weakness.

The initial reaction to dovish Fed comments on Tuesday was mixed. The market wants low interest rates, but not at the expense of economic growth. Fed officials are concerned that global weakness will spread and that tariff wars could add to the problem.

Mexico will try to fend off new tariffs when officials go to Washington DC today. They will try to demonstrate their efforts to control record migration across their northern border. The 5% tariff will go into effect June 10th.

There’s not much progress on the US/China trade front. Most analysts feel that the tone will be civil ahead of the G20 meeting on July 28th. Treasury Secretary Mnuchin will meet with the head of the PBOC this week and the tone should be positive.

Swing traders are short a full position of SPY. This is only a bounce and we will see more selling this summer as global economic activity continues to soften. A weak ISM services number this morning could send us below the 100-day moving average. We will hold without a stop. I don’t want to be shaken out of the position.

Day traders should wait for the ISM service number. Follow the reaction. Yesterday’s surge was partly due to short covering from a deeply oversold condition. Resistance is at SPY $284.20 and support is at $280. After a huge rally yesterday the bid will be tested this morning.

This bounce will set up an excellent shorting opportunity. Let it run its course.
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