Welcome to the shortened week of trading after the Fourth of July holiday. The markets are loading up and seemingly ready to take off in July, but first, we must get through a couple of critical reports for the week.

Between FOMC meeting minutes, Jobless claims, and a report on the current Employment Situation, this week could bring the fireworks.

Later today, around 2 pm EST, the FOMC meeting minutes from the last meeting will be released. We know that interest rates are heading higher, but what else is in the minutia that wasn’t mentioned during the press conference after the initial meeting? We will be able to get an idea of the tone of the Fed.

Thursday brings the next round of Jobless Claims. The last few weeks have seen the level increase closer to that 300k mark that I would use as my line in the sand before starting to worry about a recession. The market is expecting to see the number hit 245k this week, bringing the 4-week moving average up to 257.5k.

Lastly, Friday brings the latest Employment Situation. The unemployment rate is supposed to stay at 3.7%, while average hourly earnings year-over-year are expected to drop from 4.3% to 4.2%, indicating that wage inflation may be heading lower. That would be bullish for the markets, but private payrolls are expected to drop month-over-month from 283k to 199k, showing that the job market is weakening.

Each of these reports has the ability to send the market rolling in either direction, but the trend is still higher and I’m looking for the market to continue to trade in the direction of the overall trend.

I’m looking for the S&P 500 to march up to 4550, (or 455 on the SPY).

The Nasdaq (QQQ) should be clear to keep marching toward the $400 level.

The Russell 2000 (as shown using the IWM ETF) is still stuck in a rut. While it has been moving higher for a few days now, it’s yet to be seen if it’s enough to finally break free from its range.

The Russell 2000 contains smaller-cap stocks and is often used as a bellwether for how much risk investors are willing to take. If volume increases into the IWM, investors are seen as willing to take on more risk.

I’ve been writing about how July is a strong month for tech stocks and we could see another hot July.  Therefore I’m looking at Alphabet (GOOG) as a trading opportunity.  

This pullback to the 50-day moving average may provide a great entry point before it moves higher.

Over the next 4-week period, GOOG has a history of rising by an average of 7.95% with historical accuracy of over 70%. It’s the best 4-week period of GOOG throughout the entire year.

Buying the 18 AUG $120 option call would cost you $5.20 per contract. If you don’t like buying options and would rather sell them, you can look at selling the 21 JUL 118/113 put credit spread for roughly 0.95. I would like to get over $1.00 for the spread because that would give you the potential for 20% on your $5-wide spread, or roughly 20% return on risk.

I hope you had a good holiday break, but it’s time to get back to trading!

If you have any questions, comments, or anything we can help with, reach us at any time.
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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.