This blog post is a continuation from the previous blog post: My Trade During the January 31, 2018 FOMC Release Webinar. If you have not read that post yet, please do so before reading this one. Below is the evening report that was given to our Mind Over Markets Intensive Clients.
It is not uncommon for stocks to begin to question themselves as they are making new all-time highs.
Up until recently we have not seen any real worries that inflation was becoming a problem; as you can see from the long bond chart below, the long bond is approaching a fifteen-month low. Inflation worries are creeping into discussions.
Stocks-Both the long and intermediate-term trends remain up. The short-term trend turned down following a lower gap opening on Tuesday.
February opened just about the center of January’s range; this is a form of balance.
Last week’s low at 2809.25 is our important downside reference for Friday:
- Failure to trade through that level increases the odds for a rally.
- Trading through and finding acceptance below 2809.25 quickly increases the odds that the short-term, downward trend will morph into an intermediate-term correction.
You can easily see as we approach Friday and the Employment report, that the potential for an intermediate-term correction is there.
MONTHLY EMPLOYMENT REPORT – Normally I don’t pay much attention to the monthly non-farm payroll report as it is more retail hype for the news stations than anything else. This month may be more important because of the pressure bonds are currently experiencing. Following the pit close, bonds traded below the 15-month low.
It is not uncommon to see equities begin to come under pressure just when everything looks the best; the best sometimes triggers inflation fears, which triggers lower bond prices (higher interest rates). Lower rates have carried this market higher for 9 years.
Coming into Friday we are looking at a three-day balance, balance trading rules are in play tomorrow. Balance trading rules are:
- Remaining within balance suggests continuing balance.
- Look outside of balance, failing to see continuation; usually leads to trading back into balance with an attempt to trade to the opposite extreme of the balance.
- Look outside of balance and accelerate; this usually leads to a meaningful breakout. A downside breakout takes out last week’s low and increases the odds of a more meaningful correction.
We will update you in the morning following the Employment report.