The recent rally from late last week had become obviously overbought headed into this morning’s highly anticipated jobs report. The initial reaction has been a negative one, with the market gapping down over 1% at the open. Even the most raging of bulls would have likely admitted that some consolidation here would be welcomed, which sets up an interesting situation with the overall technical picture.
On the one hand, the 50 day moving average on the indices is starting to smooth out after sloping downward for a few months, giving bulls hope for a transition back into a sustained uptrend if that reference point begins to torque higher. In addition, the Nasdaq Composite has recaptured and is still holding above the multi-year key 2,900 level, as well as the S&P 500 above 1335. Beyond that, we have seen some strong individual price action in quite a few charts.
Despite those developments, though, the market still must prove itself first before it likely becomes correct to turn more aggressive on the long side. Making another higher low on this pullback is paramount, particularly holding those levels mentioned above. You are looking to see buyers of size start to show some conviction into this move, piling into stocks that continue to base out after correcting lower in May. That is a process usually delayed until after Labor Day, as we have seen the past two summers. However, the seasonal pattern might be too obvious to persist, pushing market players to front run that scenario in July.
The tug of war between bulls positioning for a fresh uptrend bears playing for another rollover is more pronounced now than at any time in months. Letting the market guide you based on its newfound underlying bid, or lack thereof, is going to separate the traders who continue to evade trapping themselves versus those constantly struggling to trade out of the hole.