Why Savvy Traders Are Not Worried About S&P 500’s Dreadful Price Action


Thursday’s S&P 500 session started out innocently enough, with the index showing a modest gain. Unfortunately, it was all downhill from there, as the index shed nearly 2% by the close.

As ugly as Thursday’s session looked, we can’t read too much into this price action because this wave of selling was nothing more than handwringing ahead of today’s employment report.

“Sell the rumor and buy the news” often happens enough that people have given it a name. This week’s bloodletting improved the odds of a bounce today.

Once a nervous owner sells all his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, confident dip-buyers have replaced these worrywarts. If these buyers were afraid of today’s employment report, they wouldn’t have jumped on Thursday afternoon.

Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

As for what happens today, I have zero ideas what the employment report will say, and more than that, even if I knew the number, there is no telling how the market would react to it anyway.

S&P 500 Daily Chart

Is good still bad, or have we switched back to good being good again? Maybe stocks rally on bad, but what if it’s awful? How bad is too bad? No one knows what today holds, and it isn’t even worth the effort trying to figure it out.

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

Give the market 30ish minutes to get the knee-jerk out of its system. After that, the market won’t be able to hide its true intentions, and it’s time to jump aboard the resulting move.

That said, the odds are good that this week’s selling price is a lot of bad news, and anything that meets expectations, or better yet, turns out less bad than feared, will lead to a nice pop.

I will let the gamblers place their bets ahead of the employment report. If it dramatically lowers my risk, I’m happy to show up a little late to this party. If this is the start of the next big, multi-day move, being 30 minutes late isn’t change much.

But as I’ve been saying for a while, I believe we are stuck in a trading range. All of the hype surrounding today’s employment numbers will most likely result in a letdown, and this will be old news soon.

If we really are stuck in a trading range, Thursday’s retreat to the lower end of the range means stocks are buyable, and I will be more than happy to snap up these discounts once all of the dust clears later.


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