Today, before the US trading session opens, January data on the state of the US labor market will be released. The unemployment rate is expected to remain unchanged at 4.1%. Non-farm payroll employment is expected to be lower at 169 000 compared to December's 256 000. A potential decline in employment suggests a cooling of the economy and strengthens the position of those who support monetary policy easing. This should have a positive impact on the stock market growth. The new US administration's initiatives of new trade wars act as a counterweight to such expectations, which in itself exerts pro-inflationary pressures that lead to the continuation of tight monetary conditions and the strengthening of the US currency. As an aside, Donald Trump said yesterday that he is not opposed to a strong dollar, but that he criticizes the policy of weakening other countries' currencies, which gives trade advantages to those countries.
All this provides significant resistance to the growth of the stock market in general, and the S&P500 index in particular, which has been hovering around the level of 6100 for more than a month.
Today's Nonfarm Payrolls will likely provide an opportunity to break this level if it shows a larger than expected decline in employment. A strong buy signal would be a combination of indicators in which the change in non-farm payroll employment actually falls below 100 000 and the unemployment rate rises above 4.1%. With such a combination of weak labor market indicators, the impact of pro-inflationary factors could be strongly dampened, which would support the stock market and the S&P500 index.
The overall recommendation is to buy the S&P500 under the above conditions of significant employment decline.
Profits should be taken at the level of 6200. A Stop-loss could be set at the level of 5950.
The volume of the opened position should be set in such a way that the value of a possible loss, fixed with the help of a protective Stop loss order, is no more than 1% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
