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Buy This Dip - Bullish Specs Will Get Flushed Out Today - Jobs Are Fine

Posted by Pete Stolcers on October 6

Posted 9:30 AM ET – Yesterday the market broke out to a new all-time high and tech stocks participate. The QQQ broke through horizontal resistance and we should see a rotation back into this sector ahead of earnings season. Bullish speculation is high – expect a one-day pullback in the next week.

The jobs report showed that the labor force declined by 40,000 in September. This was a horrible number and it could spark selling. Without question the hurricanes impacted jobs. Over 100,000 jobs were lost in the restaurant industry due to the weather. Wages jumped due to the utility sector where overtime to repair lines was extremely high. In coming months we will see a big increase in construction and disaster related jobs.

From a longer-term perspective I would disregard this number. From a short-term perspective it might be a catalyst to flush out bullish speculators. In my comments yesterday I suggested selling October call positions into strength and waiting for a dip to reload with November/December options. If you took my advice you’ll be happy this morning.

Economic data points have been strong this week and earnings season will attract buyers. The dip today will present a buying opportunity.

Swing traders should be long calls and they should use SPY $251 as a stop on a closing basis. Expect to weather a pullback in the next week. A drop will sling shot the market to a new all-time high when buyers return. The best move for the remainder of the year will come off of that low.

Day traders might be able to jump into action today. If the early decline finds immediate support and we snapback, buy calls. This would be a sign that buyers are still engaged and that they are ready to gobble up any supply of stock. If the market gradually drifts lower today and we make a new low after three hours of trading, keep your powder dry. Let the market come in and wait for support. I would be a buyer of any drop greater than 20 S&P points.

The jobs report today was filled with “noise”. It is not a true reflection of the labor market and more jobs will be created as reconstruction efforts begin.

Stay long and expect a speed bump in the next week. If you exited October calls, get ready to reload with November calls when support is established.
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