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Posted by Pete Stolcers on September 5

Posted 9:30 AM ET – We’re finally through the summer doldrums and normal trading should resume in a few days. The news vacuum is over and there are many market driving events scheduled in September. The market is challenging the all-time high and we should expect resistance at this level.

The FOMC will meet on September 20th and they will reduce their balance sheet. Fed officials will be speaking today and we can expect hawkish comments. They will set the tone for a December rate hike.

Politicians will return to DC and the debt ceiling debate will begin. The market will assume that a deal will get done and investors won’t get nervous until the final hour. Both sides will play “chicken” and the threat of a government shutdown will come down to the wire. The animosity between both parties will become crystal clear and the market will wonder if they can ever pass healthcare/tax reform.

North Korea continues its nuclear testing. The market has ignored the threat, but it is down slightly this morning on the news. This will continue and it will reach a boiling point.

From an economic standpoint, the news was good last week. I ignore the government’s jobs report (156K). It is filled with seasonal adjustments and misreporting by unemployment offices ahead of a holiday. ADP processes payrolls for small and medium-size businesses and they have their finger on the pulse. They reported 237,000 new jobs were created in the private sector during the month of August. That is a good number. Furthermore, ISM manufacturing and ISM services were above 58 (very strong readings).

Swing traders should keep their powder dry. The dark storm clouds are approaching and I believe we will see a nice pullback to the 100-day moving average. Seasonal weakness, the debt ceiling, higher interest rates and tension in North Korea will spark profit-taking. This market decline will set up an excellent buying opportunity. The farther we drop, the better the opportunity.

Getting long at the all-time high is dangerous given the backdrop. At any time you can have the rug pulled out from under you. A drop will allow us to gauge the selling pressure and it will provide a much better entry point.

Day traders should expect choppy trading today. The market will nurse a holiday hangover. Use SPY $248 as your guide. If we are above it, go long. If we are below it go short. Support is at $246. I suspect a light round of profit-taking today.

I am much more inclined to trade from the short side. I just need to see late day selling and follow through the next morning. If technical support levels are breached I will know it is time to buy some puts.
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