Volatile Range

The stock market fell sharply Thu and Fri before and after the employment reports Fri morning. The Nonfarm Payrolls report showed 207,000 net jobs were added in July, which were 27,000 more than the market expected. Also, Hourly Earnings in July rose 0.4%, which was twice what the market expected. There's a strong inverse relationship between employment and profits, in part, because when employment increases, then productivity falls, which generally lowers profit growth. Moreover, some proportion of additional labor costs tend to come from profit growth when there is little slack in the economy. Furthermore, lower productivity is inflationary, ceritus paribus (all else equal).

Employment is a lagging indicator. The Unemployment Rate is currently 5.0%, which is considered to be the natural rate of unemployment, where there is an optimal balance of labor and leisure. A lower unemployment rate would indicate strain in the labor market, which would drive up wages. So, there is some concern for slowing profit growth and rising inflation, e.g. a wage-price spiral, although there have been signs of disinflation recently. Nonetheless, U.S. monetary policy is still accommodative, and the Federal Reserve will need to remain vigilant to preempt inflation.

Consequently, the stock market may have reached a short-term top last week, and may consolidate for a month or two. July-August-September is the seasonally weak period for the stock market. The chart below shows SPX rallied about 110 points over a 3 1/2 month period. The two big down days Thu and Fri were on lighter volume, which may indicate a trading range next week. SPX hit a high at about 1,246 last week, and 1,253 is a multi-year Fibonacci resistance level that may not hold for at least several months.

SPX closed at about 1,226 1/2 Fri. Short-term resistance is at the 20 day MA, currently about 1,231 1/2, last week's pre-Friday low at about 1,235, and the 10 day MA, currently just over 1,236. If SPX rises into that area early next week, that may be an opportunity to buy Sep puts. If SPX rises higher, e.g. to test the recent high or multi-year Fibonacci level, that may be an opportunity to buy Aug puts (SPX options expire in two weeks).

SPX is currently in a support zone, i.e. the congestion area over the past few weeks when it held the 10 day MA, and the long Price-by-Volume bar at around 1,225 (on left side of chart). Other short-term support levels are the open gap at 1,221, the 50 day MA, currently about 1,213 1/2, and the longest Price-by-Volume bar at around 1,200. If SPX fails to hold the 200 day MA, e.g. in Sep, then it may close the gaps at 1,174, 1,143, and 1,138.

Next week economic reports are: Mon: None, Tue: Productivity, Wholesale Inventories, and the FOMC announcement, Wed: Treasury Budget, Thu: Retail Sales, Unemployment Claims, and Business Inventories, Fri: Export & Import Prices, Trade Balance, and Michigan Consumer Sentiment. The FOMC is expected to raise the Fed Funds Rate another quarter point to 3.50% Tue. I believe the FOMC will continue to tighten the rest of this year, until monetary policy reaches a neutral stance (perhaps 5% Fed Funds Rate). The weekly oil inventory report is Wed.

Chart available at PeakTrader.com Forum Index Market Overview section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.

---

Success Trading: Yet More Basic Terminology for New Traders

In this day and age of online brokers for virtually every market out there, there are some very useful tools that will help protect your account and... Read More

Six Principles of Successful Investing

1. Begin investing immediatelyProcrastination is the number one enemy of investing. An early start in investing can make an enormous difference as the investor will be able... Read More

Retirement or Financial Freedom?

In the past most people never retired. They died. The average life expectancy was much less than it is these days, and there were no financial planners... Read More

Eight Questions to Ask Your Financial Advisor

You may like your financial advisor, but is he really looking out for you? All advisors are not created equal, and you have a right to know... Read More

Shop More, Save More for College Gimmick or Reality?

The man sat in a chair beside a dressing room at a Tampa, Fla. maternity store. "That one looks great," he says to his pregnant wife. "I... Read More

Justify Social Security ... Dont Save for Retirement

It is a common question when investors review their retirement plan-should we include social security benefits into our retirement income projections?It seems the closer an investor is... Read More

The Arrow-Debreu Contingent Claims Model of Investment

Throughout the discussion of speculation and stability, we emphasized that uncertainty theorists now have a generally accepted framework for modeling choice under uncertainty. Economic theorists have chosen... Read More

Why Do You Want to Become a Online Trader?

Motivational guru Tony Robbins teaches that the reason for doing something rates much higher than the methods you use to get the job done. In order to... Read More

The Basics of Tax-Free UK Financial Spread Betting

Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.Quite simply, if you think a particular index, share, commodity, currency or sector... Read More

Investing in Car Dealerships: Doing Your Homework

This article attempts to help give the investor a broader basis upon which to decide whether a dealership merits their time, money and attention.Interviewing Factories and Financial... Read More

Sitcom Investing

A fickle stock market encourages good-humored mockery.Recently, as I watched the premiere of a sitcom, an obvious omission breached television etiquette. Silence followed every exaggerated comedic set-up.... Read More

Basic Options Terms

Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. In this article we will take up some basic options terms.Option -... Read More

An Old Dividend Stock Investment Idea, for a New Generation

Death and taxes! The certainties of life! And then, of course, there are the mortgage payments, the utility bills, phone bills, the car payments and thirsty automobiles.... Read More

Shareholders Meeting Changing With Times

A significant number of corporations that settled accounts in the past year are ready to hold their annual shareholders meetings.In this year's meetings, more than 300 companies... Read More

IF - The Wonders of Investing

If it seems as if all investors are selling, who is buying?... Read More

Can Your Annuity Do This?

Okay, so I can tell you I have sat in front of countless numbers of people who have made mistakes when purchasing and owning annuities. And I... Read More

The Key Ingredient To Increase Preconstruction Profits By Over $20,000

One of the greatest preconstruction investing issues that I hear from individual investors is that they can't get access to what they believe are good projects. Regardless... Read More

Lobster Trapping for Investment Ideas

Recently, my family and I took a trip to Maine to visit relatives. During our stay, we toured the rocky shore lines and took in the beautiful... Read More

Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them

Computerized investing. Online investing. Have you taken the next step yet? These days among savvy investors, online investment resources are synonymous with opportunity.The capabilities that we currently... Read More

Your Worst Enemy To Successful Investing - The Media

How do you make your investment decisions and where do you get your information? If you're like most of the people I know, you look to the... Read More

Before You Start Investing

There maybe several reasons why you to want to invest your money. You may want to retire early, want to build your own business in the future,... Read More

Who Wants To Be A Millionaire?

I am sure you have probably read about the power of compound interest. And how if you invested $10,000 at 10% return and let it compound for... Read More

Investing Pointers for Neophyte Investors

If you know next to nothing, how do you go about the business of investing? The first thing you need to know about investing is, how much... Read More

Trading Expert Discovers Ways To Beat Stock Market Odds With Money Management

The first point to mastering money management is that you have to understand when you're trading on the stock market is that you are playing the odds... Read More

Creating Momentum with Options - Pro and Cons of At-the-money, In-the-money, and Out-of-the-money

To create momentum in your options trading you need to understand the advantages and disadvantages of at-the-money options, in-the-money options and out-of-the-money options.An at-the-money option has both... Read More

Trading Tips No 4: Technical Analysis The Holy Grail Syndrome

Everyone knows that the Holy Grail of investing and trading is a myth. Finding a good technical analysis tool that will give you a trading system that... Read More