The broad measure of the U.S. Equity market, the S&P 500, has found it's way out of a deep hole, dug by the October Employment Situation report that toted headline unemployment at 10.2%. Perhaps giving way to the resilient tone among investors in U.S. firms, this Monday through Wednesday have announced little new economic data, yet made solid gains to put the S&P 500 flush with it's 13 month high and the psychologically significant 1100 level for the index.
The market took a session to pause before closing above the 1100 mark on Wednesday and raises questions as to how far this market can rally. The unemployment report to be released this morning will surely set the tone for the session and perhaps provide insight towards the sentiment of investors as a whole. Should initial jobless claims match or exceed the 515,000, expected by Bloomberg economists, and we see a market rally, the market is in a buying mood and shorts should close positions. While a beat for the bulls would come in the form of an Initial Claims report below the 515,000 level. Continuing claims are will be a wash, considering the numbers are being skewed by many workers' benefits expiring (a very negative reality for consumers and retailers).
If the 1100 resistance holds, be prepared for a considerable sentiment shift downward and take advantage of the move by adding to SDS and SCC positions. While we haven't yet formally recommended the position, consider shorting the IYT (Transportation ETF) which has seen an incredible jump due to the Warren Buffett purchase of BNI and will move sharply lower on negative economic fundamentals.
Conversely, should the 1100 mark be broken we see considerable upside risk to short positions going into the weekend. However equities remain in a stimulus rally supported by government balance sheet expansion, which has allowed inventory restocking to buoy growth.
