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<\/div>\nJeff Clark<\/p>\n
The stock market didn\u2019t do much of anything yesterday.<\/p>\n
The S&P 500 rallied a few points higher. Then it drifted a few points lower. The index tested the support of its 9-day exponential moving average (EMA). And, by the end of the day, it closed basically unchanged.<\/p>\n
The bulls look at this sort of consolidating action and say, \u201cSee, the sellers don\u2019t have any momentum. The trend is still strong. The S&P is still holding above its 9-day EMA.\u201d<\/p>\n
On the other hand, the bears say, \u201cThis action is just working off the short-term oversold conditions. The market is building energy for the next move that takes out support and pushes the market sharply lower.\u201d<\/p>\n
If you ask me, I\u2019ll shrug my shoulders and tell you it\u2019s a coin toss. It\u2019s a 50\/50 bet either way.<\/p>\n
But there are a couple of market-moving events coming up that could provide an edge\u2026<\/p>\n
On Friday, we get the November jobs report number. That report could provide a catalyst to move the market one way or the other.<\/p>\n
Then next Wednesday, we get the FOMC announcement on interest rates. That event could also create some volatility.<\/p>\n
The typical pattern going into an FOMC announcement is for stocks to decline on the Friday and Monday before the announcement and then rally on Tuesday and Wednesday.<\/p>\n
And the typical pattern after the monthly jobs report is for the market to reverse whatever happens the morning of the report. In other words, if stocks gap higher in response to the jobs number, then they tend to fall back down later in the day on Friday or Monday. If stocks gap lower immediately following the jobs report, then they tend to rally later on Friday or on Monday.<\/p>\n
So, here\u2019s how I plan to trade the market going into these events\u2026<\/p>\n
If the stock market gaps higher on Friday morning, then it\u2019s going to set up a terrific short-selling opportunity. We\u2019ll have the reversal pattern of the jobs report in play, and we\u2019ll have the potential for the pre-FOMC meeting weakness. A gap higher on Friday gives traders a lower-risk setup for a short trade on the broad stock market.<\/p>\n
If stocks gap lower in reaction to the jobs number, then I won\u2019t do anything on Friday. I\u2019ll count on the traditional pre-FOMC meeting weakness to carry into Monday. Then I\u2019ll look for short-term oversold conditions to provide a solid long-side trade setup in anticipation of strength on Tuesday and Wednesday.<\/p>\n
That\u2019s my game plan for now. It\u2019s neither bullish nor bearish. It\u2019s reactionary, and it\u2019s based on how the market has behaved previously in these circumstances.<\/p>\n
There\u2019s no guarantee that it works out well, of course. But, when the market direction is a coin toss, using previous patterns to define lower-risk\/high-probability trade setups can provide just enough of an edge to help turn a profit.<\/p>\n
Best regards and good trading,<\/p>\n