ADP Report/ False Rally

http://www.adpemploymentreport.com/pdf/FINAL_Report_August_10.pdf

Even though goods producing lost 40,000 jobs last month, the stock market is trading higher on the “better than expected” news. Manufacturing “only” lost 10,000 jobs which regardless has been enough to push the DOW 235 points positive. This is one of those 200 point up days that scares me. The reason for this is because of the steep increase in the first half hour and then the stagnating plateau for the rest of the day. In my opinion that’s a warning sign of a false rally based on headline news. I’ve seen this type of intraday trading before, the most recent example was the Monday after the flash crash and at the height Greece debt situation when we had a full week where we lost thousands on the dow and then received the news of the bailout.

Sure enough, we had a 400 point up day, or should I say 400 point first hour?

Sure enough, by the end of the week, the market lost its gains and fell much lower when everyone realised we were far from out of the woods.

It’s not going to take long for people to realise that we have a whole month of news ahead and it happens to be historically the worst month for equites. In short, I’m not buying into this rally, I’m keeping my head and not trading on emotion.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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