Sidelines Look Attractive

 | Sep 02, 2011 | 8:13 AM EDT
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Every month that we do not have an economic recovery package, 500 million Americans lose their jobs.

-- Nancy Pelosi, Jan. 18, 2009

The unemployment situation may not be quite as bad as House Minority Leader Nancy Pelosi stated it was nearly two years ago, but it is still looking pretty bleak and that is weighing on the market this morning. Economists have been cutting back their predictions aggressively and market participants are understandably nervous as we await the report.

Weak economic reports out of Europe aren't helping matters and with the long Labor Day weekend ahead, the sidelines are looking quite attractive. But what really matters right now is whether the market has already discounted bad news to some degree. Expectations are quite low and it would not be at all surprising to see the jobs number come in substantially below the stated expectations.

Unfortunately for the bulls, this market not only has plenty of negative news to contend with but it is dealing with a challenging technical picture. We had a decent bounce over the four days prior to Friday as hope of some sort of Fed action at its meeting in a few weeks took hold. However, many are skeptical that the Fed really has much ammunition left.

President Obama will be presenting a new jobs program next week, but skeptics abound: If there really is a good solution, why hasn't it already been implemented in the last couple years? The market is not overly optimistic about any government solution at this point.

The big picture just doesn't look very good right now and there isn't much we can do about it other than to accept it and wait for conditions to improve. Far too often, market players can't sit still and they rush in to prematurely bottom-fish.

There is nothing wrong with trying to snap up some bargains when the market is acting poorly, but the key to success is timing. Nothing wipes out more traders than averaging into downtrending stocks too big and too fast. Tattoo that thought on the back of your hand and keep it in mind when you start to think that the stock you loved 20% higher can't keep on sinking.

The best advice I can give right now is to just stand aside and not do too much. I'll be looking for some short-term trades once the jobs news is out but I have no plans to act as if the bottom is in.

I think there is a good likelihood that we will see a bounce if the market takes a hit on the jobs news, but I'm not looking for sustained upside momentum at this point.

Buckle up and strap on the trading helmet. It is going to be a rough ride.

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