Trading volume and activity is relatively light today, as was the case yesterday. Many bulls are concerned that the S&P 500 is not making new closing highs now that we are in December. Adding to those concerns is the relative weakness of financials compared to the broader market. Financials typically out-perform in bull markets, but they are only up 3.35% since September 4th compared to 10.6% for the S&P 500.
Although there is some truth to this argument, the focus right now should not be on relative strength of financials, tech stocks, or anything else for that matter. The jobs number and volatility is where you should focus your watchful eyes over the next 24 hours.
Since the last Non-Farm Payrolls and Unemployment numbers were released on November 6th, all three major indices are up over 4% (Dow 4.41%, S&P 4.04% & Nasdaq 4.15%). That doesn't seem to make too much sense considering the unemployment rate on November 6th hit 10.2%, the highest level in over 26 years!
So even if the unemployment rate rises tomorrow, I think that the market is set for another rally from a technical perspective. The chart below shows the S&P 500 Index at the top, with the CBOE Volatility Index (VIX) at the bottom with 20-Bar Bollinger Bands. As you can see, the outer bands on the VIX currently sit at 25 and 20. This is no coincidence, because those are two clearly defined support and resistance levels for the VIX on a daily chart.
Secondly, look how tight the bands have become around the VIX in the last week. Even in the face of last Friday's panic about credit problems in Dubai, we still have seen the bands continue to tighten. Even if we get a terrible jobs number and the market sells off hard tomorrow, the upper band is so close to where the VIX is now, we are likely to see a break of the upper band. And the last four times we have seen a close outside the upper Bollinger Band, the market has put in a short term bottom.
At the end of the day, tomorrow's jobs number is the catalyst to get this market into a trending phase once again, and I believe that the trend will be bullish. Buy any dips in the next few days, because that will be your best opportunity for profit.
Tag >> payrolls
This is an important week for economic data, specifically pointing to the jobs reports. In recent months, the data has been much more friendly, perhaps pointing toward some stability. However, the recovery may have stalled, and the momentum from a good number may be lacking. In fact, a recent report of online help wanted ads fell by 101,800 in September, which suggests that Friday's non-farm payrolls report may not be as healthy as everyone expects. We'll see the early reaction from the ADP report then Thursday's jobless claims thereafter. Let's not forget the turn of the calendar is on Thursday. Could a correction be far behind?