May 30, 2017

Some Interesting Probabilities Surrounding Payrolls

Will the beginning of the “anticipated” correction come tomorrow?

The Nonfarm Payroll report is often a market mover and I expect to see much of the same tomorrow.

The market is wound tight and typically when that occurs we are witness to a large directional move.

I expect, regardless of how positive (or negative) the report is tomorrow, the market will push lower.

As most of my loyal readers know (and thank you all for the amazing support by the way) there has not been a shortage of bearish indicators as of late. Over the past two weeks, with volatility drying up (VIX now in the low 18’s) due to the tight trading range over the past two weeks, bearish indicators have piled up and have reached extreme proportions. I compare it to stacking pennies, eventually the stack falls when the weight becomes to great. And right now, the weight of the market overwhelming.

But back to the Nonfarm Payroll report.

Talented analyst Jason Goepfert of Sentimentrader.com recently stated that when “the S&P 500 closed at a six-month high with volume 10% off its low from the past month (as it did on Thursday), then the next two days were positive only 12 out of 46 times.”

Out of the 12 positive occurrences, only twice did it advance more than 1%. Thirteen times it closed with a loss greater than 1%.

Another interesting stat provided by Mr. Goepfert is “the last 8 Fridays when the Nonfarm Payroll report was released” all have closed lower than than te prior trading day.

In fact, if you went back to September 2009 and purchased shares of the S&P and sold at the close of the trading day you would have only made a paltry 1%.

Couple the aforementioned studies with short-term overbought readings in three out of the four major indices and I expect to see a short-term pullback over the next 1-5 days.

The two best performing days (on a historical basis) in February are now behind us and now we are entering into a period of bearish seasonality.

Just more food for thought.

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