For almost a year now, the S&P 500 has been pretty lifeless. Yes, there have been ups and downs, but in the last 7 months, the index has only moved a total of about 36 points. For an index that has historically been a great indicator of what the U.S. economy is doing, this isn’t necessarily a positive thing. It’s not really a bad thing, either. Just something to keep an eye on. It has made life difficult for traders, though, as it’s been tough to predict which way it will go. Every once in a while, there will be little events that can help us predict motion here, and because this is a broad indicator, that motion will translate into the companies that define the economy, too. Keeping an eye on the index helps to determine how to trade those companies.
One of these events is the payroll numbers report, which will be released for July next week. If there is a big surprise to the positive, the concern is that it will point to the Federal Reserve raising interest rates. That would have an impact on the S&P, and even though a good number would be overall positive for the economy, the looming backdrop is that a good economy will raise rates, which will hurt the S&P. It seems that even good data will continue the stagnant market here.
What’s a short term trader to do? Obviously watch the technical indicators of the big companies in the S&P. Some of the large cap companies do have potential to swing index numbers if something drastic happens. Google is a prime example of this. A couple weeks ago, when the company had a 16% swing in price, the whole index was positively influenced. Traders following the S&P could have easily cashed in on this, either through Google stock, ETFs, or binary options.
When direction is tough to determine long term, short term trading is advantageous, but only if there’s good information that can help you to accurately predict what’s going to happen. Besides technical indicators, the news is a good source of this info. If something happens, such as an announcement, a new policy, a huge product release, or something similar, that data can be weighed in light of other ongoing things to see if there will be an impact. So, if a better than expected payrolls number is released, the Fed says that they will not raise rates this year, and Google announces that they’ve made a breakthrough on their driverless car and their stock begins to rise, you suddenly have a very good scenario for a rising S&P. Then, you need to consider events in China and Europe, the price of oil, and other international events. If the good outweighs the other, the S&P will still go up. It might not last for long, but jumping on it in some capacity for the short term will more than likely create you a profit. How much you make will be determined by your trading method, the amounts you trade with, and how long your exposure is. Those are all things that you will need to determine on your own. Listening to the advice of the experts and watching the news is just the first step.
The payrolls report is expected to show that about 222,000 jobs have been created in July. That’s right on the current pace, where 223,000 were created in June. Unless this number is way higher than expectations–about 1.5% higher or more–the market will keep doing what it’s been doing.