Average Hourly Earnings In Focus

The Employment Situation report is always very important to the market, but today I think the focus will be on the Average Hourly Earnings.  With three of the four major indexes closing below their 50-day averages this largely ignored number is likely to set the direction of the market today.  I have been warning of caution for so long it’s become tiring, but my caution has paid by protecting my capital.  Sadly I must continue to say caution is warranted.  I think a relief rally is near, but that is not a signal of bullishness.  We must keep in mind the index’s now must deal with overhead resistance.  A rally could prove to be the time to sell not a time to buy.  Also, remember with the VIX moving higher the possibility of very fast reversals increases so the traders must be prepared for anything.

On the Calendar

Today we get one of the most important reports on the Economic Calendar, the Employment Situation.  Most of the time the market is laser focused on the Jobs creation number.  However, with the unemployment rate expected to hold at 4.3% (considered as full employment) focus has turned to wage growth.  If the U.S. consumer-based economy is to grow then, consumers need to have the ability to spend more.  Wage growth has been lagging behind for years, and the market wants to see that change.  Consensus suggests the average hourly earnings will improve from 2.5 to 2.6 this month.  A reading of anything above 2.6 I believe the market will see as very bullish.  If the number disappoints, I think we should expect Bears to gain strength.

Wage growth also signals rising inflation which in turn increases the likelihood that the FOMC will react raising interest rates.  The true double edged sword!  There is only one company, GRIF on the Earnings Calendar today which is obviously not a market moving event.

Action Plan

Yesterday we witnessed some hungry Bears pushing all the major indexes lower.   The DIA chart now has the appearance of a double top forming while still clinging to a price support and above the 50SMA.  That’s the good news!  The bad news is that the SPY, IWM, and the QQQ closed the day below their 50-day averages.  The VIX is showing that some fear created into the market yesterday while T2122 suggests we could be nearing a market bounce.  So which way will it go?

I think the tie breaker today will be in the average hourly number at 8:30 AM Eastern.  A number of 2.6 or better and I’m guessing we will see the market gap up.  If the number comes in below 2.5, I think a gap down is likely.  With that in mind, I will be keenly interested in how the market reacts to the Employment Situation report.  Personally, I favor a nice relief rally, but oddly my phone isn’t ringing with the market asking for my opinion.  Friday is normally not a day for me to consider buying new positions but if the opportunity arises, I will be prepared to do so.

Trade Wisely,

Doug