Relief Rally: Day 2

I don't have a lot to say this evening since the markets are continuing to vacillate within their technical ranges.  Once again, the S&P 500 finished the session higher by 9.81 (0.91%) points on light volume (3.1 billion shares).  The fact that the market chose to rally ahead or tomorrow's jobs report was certainly counter intuitive given the negative insight provided by yesterday's ADP numbers.  To me, this feels like yet another instance of the program traders moving the markets around in a way that is totally disconnected from the underlying fundamentals.  This is part of the reason why I've chosen to move to the sidelines; it's near impossible to trade this market rationally when large pools of money are forcing the action in a disconnect manner.  With the BLS jobs number due out tomorrow, it will be interesting to see if the market trades in tandem with the fundamentals or continues to move independently.

Much like the equities, most other markets continue to simply churn within their recent ranges.  As a result, I'm finding fewer and fewer trading opportunities that I can get excited about.  However, the one market that continues to garner my interest (I've been watching it for several weeks now) is the Japanese Yen.  With pessimism creeping back into the market during the past week or so, the Yen, along with Treasuries, has seen a rather robust amount of buying.  While historically a safe haven currency, the size of Japan's debt burden (over 200% of Japanese GDP) should raise serious questions about the country's long term growth and safety.  As a result, I am seriously considering placing a short position on the Japanese currency if/when I get a technical signal that implies the current trend is reversing.  For now, though, the upward trend appears firmly in place for at least the next week or so.  However, with the fundamental challenges underlying the Japanese economy and a deteriorating demographic profile coming home to roost, the Yen will, at some point, end up being a great short position.  Needless to say, I'll be keeping a sharp eye on this market for signs of the trend's reversal.

While tomorrow's BLS numbers would normally be a big event, the fact that the data is being released on the last working day prior to the Labor Day weekend means that its importance will be greatly diminished.  This does not, however, mean that the equity market will trade in an innocuous fashion.  If the past few months have shown us nothing else, it's the fact that thinly traded markets can and do experience dramatic changes in prices.  And odds are that this will happen tomorrow as well.  If nothing else, this should something worth watching while we all watch the clock tick down to the start of the holiday weekend.  Perhaps getting this last summer holiday out of the way, the markets can get back to more rational (and thereby predictable) trading.  We'll see soon enough.  Until tomorrow.....