Like the expression says, 'something’s gotta’ give'. On Thursday traders were desperate for signs as they tried to determine whether stocks were about to break higher or tumble lower.
The S&P 500 is currently stuck in a trading rage with support at its 200-day moving average around 1,115 and resistance at 1,130.
Which way will we go?
The Bull Case
- GOP REVOLUTION
The biggest upside catalyst for this market are the mid-term elections, says Steve Grasso. If the GOP wins the House we’ll have gridlock and that should benefit the market. I think the S&P makes its way to 1200.
Credit Suisse has said gridlock will generate a headwind for equities, reminds Melissa Lee not a tailwind. Doug Cliggott says gridlock may prevent the government from trying to goose the economy with the kind of additional stimulus that may buoy stocks.
I disagree, counters Jon Najarian. If the GOP wins the House I think markets take it as a positive. (That's because the stock market tends to breathe easier when a gummed-up government lowers the prospect of new regulation or legislation that might crimp businesses, writes the WSJ. And one of the surest ways to jam the system is when party control is split between the White House and Congress.)
In fact I’m betting ahead of the election more money flows out of bonds and into equities with a long position in the TBT – the ETF that’s short the longer dated Treasurys, Najarian adds.
The Bear Case
Steve Cortes is keeping a close eye on action in staffing firms and he doesn’t like what he sees.
Since the S&P bottomed in early July staffing firms such as Robert Half, Manpower and Monster have lagged.
If you compare the chart of Monster against the Retail SPDR you see that Manpower is nowhere near August highs while the XRT is well above its August highs. I think this is a foreboding sign, says Cortes.
I think it shows we have structural unemployment – not cyclical unemployment that we’ll quickly bounce out of. If my thesis is correct ongoing unemployment around 10% will weigh on banks and retailers. My trade is short both sectors.
Companies have no reason to hire and that can’t be a good thing for the market going forward, says Guy Adami.
- BAD ECONOMIC OMEN?
Other investors are wondering if the latest forecast from FedEx is a bad economic omen . CEO Fred Smith said he expects the pace of the world's economic recovery to slow in the months ahead. Also FedEx is cutting jobs -- as many as 17,000 jobs.