Typical Knee-Jerk Reaction

December 8, 2006 · Print This Article

The Labor Department released the closely watched Nonfarm Payroll report today at 8:30 Est and showed an increase of 132,000 jobs during the month of November. Shortly after the release the market began the wildly vacillating trading day that we typically see following the monthly jobs report. Often the first major move following the report is a false one and today’s trading was no different. Sellers stepped in early and moved the market down to an area of strong support. It looked like the market was in for a dreadful day. However, after a few minutes of consolidation around an area of strong support buyers decided they had enough and stepped for the expected reversal.

Both the SPY and QQQQ were able to hold important support levels which could bode well for the market over the short-term. It will be important to watch these levles next week as the market moves into Options Expiration.

Historically, next week is the weakest period during the month of December (7th trading day through the 11th trading day). Monday, the 7th trading day of the month, is typically bullish which coincides with the historical pattern that occurs on the Monday of Options Expiration. However, the rest of the week is up for grabs as far as seasonal tendencies go. I mentioned before how next week is historically, the poorest performing week during the month of December, but the seasonal bias for next week’s pre-expiration period is slightly bullish.

Could we see the typical Tuesday Top this during this expiration period? (Often during expiration week Tuesday marks the high for the week.) I think it is quite possible given all of the bearish indicators that I have mentioned over the past several weeks, which is why it is very important to keep a close eye on the 141 area of SPY. If the market can break below that level and hold we could be in for a rough expiration period.

See you next week. Have a great weekend!

RSI Wilder (5) for December 8, 2006