Downside Limited, Upside Promising

Now is not a time to lose focus. We are back at a critical juncture as the indices have moved up to resistance levels. The jobs report didn’t help to clarify the picture as we hoped that it would. Traders were most likely looking for a “Goldilocks” report that showed that the economy is not too hot, not too cold. Instead numbers came in surprisingly high taking wind out of the sails for those looking for a break in interest rate hikes over the next month or two. Even so stocks are behaving a bit more bullishly than they have in a couple of months. While we don’t want to bet on a breakout here we need to be careful to not bet too strongly against one either. We have always had better results shorting support breakdowns than we have shorting pullbacks to resistance, which are harder to time. One theme that stands out above the rest here is the fact that the market remains very long term oversold at current levels and a lot of money is on the sidelines. We may get a pullback off of resistance levels next week, but the downside appears to be much more limited than the potential (emphasis on “potential”) upside in coming weeks. As such, we need to be very picky and choosy and use tight stops if we do decide to short this resistance area.