Yesterday’s action gave us a good look at the importance of the 9-day exponential moving average (EMA).
The 9-day EMA is the defining line between a short-term bullish trend and a short-term bearish trend. When the S&P 500 is trading above its 9-day EMA, the line provides support. The 9-day EMA offers resistance when the index is below the line.
Yesterday, the S&P 500 tested the 9-day EMA at 2404 as support two times. Buyers stepped up each time and kept the market’s momentum in the bullish camp.
As long as the S&P holds above its 9-day EMA, the bulls get the benefit of the doubt. Bearish traders should avoid aggressive bets until the S&P dips below that important support line.
Now, here’s what to look for in the action today…
Stocks
Whatever action we see today is going to be traders positioning themselves ahead of tomorrow morning’s jobs report. The stock market has been stuck in a tight trading range for the past week. So there’s plenty of energy available for a larger-scale move. The jobs report just might be the catalyst.
Bulls can point to the resiliency of the high-yield bond market and the semiconductor sector as evidence we’ll get a breakout to the upside. Bears can use the pitiful performance of financial stocks to bolster their case.
From my perspective… it’s a coin toss.
My instinct favors the bearish case. That’s not saying much. I always tend to lean that way. But my money is evenly spread out across the board.
I have a handful of bullish trades, a couple of bearish positions, some modest exposure to the gold sector, and a whole bunch of cash. It’s not a very exciting portfolio. But it has avoided the erosion most traders suffer when the market just chops back and forth – as it has for most of the past three months.
I suspect that as we head towards June option expiration we will get an impulsive move to the downside. At least, that’s what VIX options are telling us should happen. But the S&P needs to close below its 9-day EMA before I’ll start pressing my bets in that direction.
Gold and Gold Stocks
Gold had a good day yesterday – rallying almost $10 per ounce. But gold stocks lagged the move. While gold popped 0.77% higher, the VanEck Vectors Gold Miners Fund (GDX) gained only 0.44%.
Gold does better when the stocks outperform the metal. So the underperformance of GDX versus gold is a little concerning to the gold bulls.
But, as I told my Delta Report subscribers yesterday:
“Gold stocks have been chopping back and forth for the past several weeks, building up energy for the next big move. Now, with the May jobs report set to be released Friday morning, and with the next FOMC meeting coming up in two weeks, it seems that right now would be a good time for that big move to get started.”
Just like with the broad stock market, traders are likely to position themselves in the gold market based on what they think will be the reaction to tomorrow’s jobs report. So look for a tight trading range in the gold sector today – followed by an outsized move tomorrow.
Similar to stocks, gold could go either way in the short term. I personally favor the upside. That’s nothing new. I am a bit of a gold bug. But, I’m not averse to shorting the gold sector if there’s a good trading setup for the downside.
Right now, though, I think the trading setup favors the long side. And, if I’m wrong, I don’t mind holding some modest exposure to the gold sector through a brief downturn.
I’ll update Delta Report readers on these trends throughout the day on Jeff Clark Direct.
Best regards and good trading,
Jeff Clark
Mailbag
I always look forward to reading your feedback. Be sure to send me any questions, concerns, or great trading stories right here.
We are huge fans. Jeff's trades (“scalps”) in previous years helped us retire. GES was truly a reason to wake up each morning early and check his opinions prior to market open! Jeff, you have appreciative fans in Sonoma's Wine Country…
– Henry M.
Jeff, I have NO complaints. I am only at this option trading in earnest for about two years. I followed you at Stansberry and now since you are on your own. I am LEARNING SO MUCH from you and really value your commentary: it gives me a feel for the market without which I feel lost.
More to the point I am finally making money by following your advice. I have made money based on trades on SPY (take that complaining guy!) based entirely on your market feel. If I lost money that would have been my fault (sinc you didn't recommend the trade) But I did make money and that was your “fault”. THANK YOU! With your help I have learned another important lesson:
Aphorism: when uncertainty and chaos reign, don't just stand there, do nothing!
Your TLT trades taught me patience pays, but your market commentary gave me confidence while I waited. Don't change a thing. This has been the weirdest sideways market I have been aware of. Stick to your guns, wait for the fat pitch. If I wanted “action” I could go to a casino and lose money very efficiently. Making money with patience feels a whole lot better.
P.S. You had me at “six minutes”. LOL
– Bill B.
I wanted to thank you for bringing the TOL trade to my attention. Unfortunately, I wasn't quick enough to buy the Puts for $0.50. However, I did a Combo trade, buying a July 39P for $1.71 and selling a July 38C for $1.46. Net cost $0.25. Then, on your cue to sell the put, I reversed and sold the put for $1.93 and bought the call for $1.20. Net income $0.73. So, for a short-term trade: 192% profit. I did July rather than June in case the stock went the wrong way short-term.
There is more than one way to skin a cat!
Thanks, Jeff!
– Scott S.