Bears Continue to Control Market as Stocks Plunge Again

Market Makes Another Massive Move Lower

The overnight trading session saw S&P 500 futures trade flat in anticipation of the morning’s Nonfarm Payroll (NFP) report. Once the report was released at 8:30 a.m. Eastern, traders pushed the market higher, but the post-report price action resembled the trap from the prior session that preceded a massive downturn. These similarities were noticeable early on in the current session. The NFP report revealed a 311,000-job increase, surpassing the consensus of 225,000.

Traders can interpret the report in various ways. If the labor market continues to improve, it would be advantageous for traders to anticipate a rate hike by the Federal Reserve (Fed). On the other hand, traders may view a growing labor market as beneficial for the economy but not necessarily indicative of a thriving stock market.

Beyond initial observations, traders must evaluate the report’s broader implications. The relationship between the stock market and the economy is interdependent but not wholly overlapping. Traders must consider other determinants that impact market performance, such as geopolitical risks, economic policies, and political instability. A comprehensive approach allows traders to make informed decisions and mitigate potential risks.

Same, But Different 

Similarities from yesterday’s trading session to today’s were:

• A bull trap set by a job report with negative sentiment.
• A double top at the day’s high (consisting of a slightly lower high).
• Heavy lunchtime selling. 

Today’s trading activity was more challenging due to the broader range established before lunch hours. Despite this, the underlying traps and motives driving the market movements remained the same.

The market makers set the first trap of the day by executing an aggressive flush as soon as the opening bell sounded. This tactic aimed to entice traders to short out of fear of missing out on profits from the previous day. By pushing the market to the lows and breaking the psychological level of 3,900, the market makers swiftly pulled the rug from under short sellers’ feet, causing maximum pain.

As the S&P 500 futures approached pre-market highs, they encountered the downtrend established during yesterday’s session. This rejection point signaled a clear mission, and selling volume picked up, leading to a complete reversal on the day and pushing the market back into negative territory.

The objective throughout the week has been to drive the market lower in a problematic manner. Looking ahead, next week presents several economic events that could exacerbate market volatility further.

Critical Levels to Be Aware of

The S&P officially trades below the yearly open of 3,895, meaning the year has now flipped from positive to negative territory. One level to watch below is 3,814, which is the current low of this year. 

Monumental Economic Data Next Week

There are several economic events next week, but none are more significant than the U.S. Consumer Price Index (CPI) reported on Tuesday and the U.S. Producer Price Index (PPI) on Wednesday. Both of these reports will come out at 8:30 a.m. Eastern. 

Market’s Selling Continues to End the Week

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed down 1.45%, losing 57 points, while the Nasdaq futures closed down 1.41%, declining 168 points. The Dow Jones futures followed, down 1.05%, losing 337 points.