Look for Stocks to Bounce

Stocks continue to slide lower. However, based on a technical guess, the slide will soon come to an end. The key to look for is consistent patterns in which both stocks and bonds trade. Over time, they tend to be in either downward, sideways or upward trading channels. Most often, there is a point that is considered the bottom of a range, which is where we would expect the downward move to end. This floor would now be considered to be the 25 day moving average, which isn’t too far beneath current levels. Unless tomorrow’s Bureau of Labor Statistics (BLS) report comes in well beneath what the market is anticipating, we should soon see stocks reverse course and begin to move higher.

This morning’s ADP Employment report showed fewer new hires in the month of August than the market expected.  With the initial consensus set at 190,000, the actual number reported was just 163,000. Now keep in mind that tomorrow’s BLS report is far more significant, and considered to be the benchmark for tracking employment growth rates.  The market is currently expecting the BLS report to come in at the 187,000 level. Now considering that the BLS report has been lagging the ADP report in recent months, there are one of two things that can happen. We will either see the lagging trend continue or we will see a “make-up” month where the BLS report comes in strong to essentially make up the lag it has been trending as of late. My guess is that we will see the lag continue. But my guess is as accurate as choosing red or black in Vegas. It could go either way.

Given the bond markets lack of ability to break above the ceiling that isn’t too far above current levels, we will maintain a locking bias.