Short-term Play? Overhead Resistance Looks Formidable and Upcoming Jobs Report.

The market bounced back to the recent highs established on 4/25 this morning and then began to consolidate around that area. The overhead resistance looks formidable at this juncture. Since reaching this area the S&P (SPY) has struggled to push higher and with the major benchmark once again near an overbought state it could possibly fail this time around, at least over the short-term (1-5 days).

On a seasonal basis the next couple of days are slightly weaker historically with Friday being the weakest. Since 1950 the S&P has only finished higher 23.8% of the time on the fourth trading day.

seasonality alone is (in almost every case) not a reason to place a trade. However, when compared  with the current state of the market at the time the seasonal tendency arrives, the probability of a successful trade can be increased tremendously. Always be aware of the market’s seasonal picture.

If the market is able is to hold at its current level tomorrow there could be a good opportunity for a short-term play. However, the market-moving unemployment report is due out before the bell Friday so taking a position Thursday afternoon is risky. The safer play would be to fade the open if it is indeed higher at the open, especially if the S&P gaps at the open. Either way, as I am sure all of you know there are no guarantees in trading/investing so be nimble when trading over the short-term.

Over the past year this type of action (gap open) has occurred roughly 50% of the time. When it does occur the return a week later is approximately -1.2%.  

If the market opens significantly lower I am not going to chase the move as the probability just isn’t there for my style of trading. Remember, opportunities are made up easier than losses. So if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner.

Overbought/Oversold levels for May 2, 2007

• SPY -  68.6 (neutral)
• DIA - 84.4 (very overbought)
• IWM - 55.1 (neutral)
• QQQQ - 68.9 (neutral)
• GLD -  34.3 (neutral)
• OIH - 69.7 (neutral)

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