Wednesday, July 6, 2011

Priced to Perfection: Trading the ADP Jobs Report

The price of the SPY is apparently priced to perfection. I say this because of the sideways trading we've seen for the past couple of days.
Sideways consolidation typically tells us that the market has priced in every bit of available information out there and is waiting for more. In this case, it's the ADP private jobs number to be released Thursday pre-market.

The best way to incorporate the results of this data into your trading plan is to not be concerned with the numbers and concentrate on what the market expects versus what it gets. Right now the market is expecting an additional 60-68k jobs to be added to the private sector. This means that if the numbers come in as expected, it should be another muted trading day as the market has already priced this into stocks. If the market is surprised, things could get more volatile.

A surprise will come in the form of either under-performing or out-performing what the market already expects. This should be fairly self-explanatory--a low number will send the markets down, and a higher number will send them up. And the extent to which it under or out-performs will determine the extent of any move in the SPY up or down.

Personally, I will wait for the numbers to be released tomorrow morning before speculating one way or the other. One thing I will say though is that poor ADP showing will put a dent in an already extended market. The market will need a good number, probably above expectations, to keep a rally like we've had since mid June going strong. 

On Friday, Non Farm Payrolls data will be released. I suspect that a neutral ADP number tomorrow will cause the markets to pause again until then before making a move in either direction.

For my latest thoughts on this and other topics, check back here daily and follow me on twitter @TheTSXpert.


  1. Yep I agree. We are crazy extended right now. Trying to carve out right shoulder.

  2. Anon, I assume you're talking about the possible head and shoulders on the SPY daily chart. If it does carve out a right shoulder and breaks the neckline, look out below. The target would be all the way down to 1145.

    Good eye, though. I may do an article on this later in the week.