Friday brings on the much anticipated monthly employment report. Forecasts call for a total of 125,000 non-farm payroll jobs to have been added during November with the employment rate expected to hold steady at 9%. More importantly though, the private sector is expected to have added 150,000 jobs last month. Given the odds of a pullback, as outlined in our commentary yesterday @ the close, the markets are likely looking for a number closer to 200,000 jobs created in order to move higher in the immediate term.
Turning to some technical indicators, have you noticed the volume in the Dow Jones Transportation index this week? Advocates of the Dow theory undoubtedly have, and its worth noting in this writing. The index is on pace for its biggest one week advance in years. Even more impressive though is that the index is going to trade more volume this week than in any other week during the last three years, including the 2008-2009 bottom. Such truths are further evidence that this market is likely to be in rally mode in the near future.
Have you noticed that we’ve pulled a major flip flop this week? Two days ago we were saying how decisively bearish we were (and we still are on a more intermediate/long term basis), but we noted on Wednesday, “the importance of being prepared for outcomes the market is not prepared for.” That preparation allowed us the single most important ability in being a successful trader: The ability to change your mind in the blink of an eye. When circumstances change (our preference is technicals, but some may choose fundamentals or what have you) you must be able to change. Before you can be able to change, you must be willing to change. And being prepared for change makes it a whole easier to be willing and able to do so.
Our message is simple, if you are only prepared for one possible outcome then you will only be able to make money if that outcome plays out. Unless you’ve been living in a cave with your fingers plugging your ears the last three months, then you don’t need us to tell you how foolish it is to only be expecting one outcome in this volatile market. You need to remain open minded at all times and have game plans for all types of scenarios.
The best analogy we can think of is that of a sports coach who expects the opposing team to defend his team a certain way. So all week he prepares his team for what he is expecting the other team to do, never considering any other strategies the other team might implement. Then when the game starts, the other team doesn’t do what the coach has prepared his team for. His team will then find themselves in a state of mental paralysis as everything they have prepared for all week isn’t happening. The market can cause this same paralysis for traders, but only if they are not prepared.
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