7-5-06 Dip Buyers Are Being Given an Opportunity

Good Evening.

After the recent snapback rally it certainly isn't surprising that the market would have found an excuse for some profit taking. Several North Korean missiles fired into the Japanese Sea seems like a good enough excuse. More importantly though traders found themselves taken back by the strong jobs report issued by ADP of 368,000 new jobs for the month of June. Despite this ADP report having barely any track record to speak of even the threat that the Friday payroll numbers may be significantly stronger than expected is enough to have many traders move to the sidelines. This is still a data dependent market and Traders are hyper sensitive to any and all economic data points.

Today's decline was somewhat ugly and most likely trapped certain skittish Bulls who were hoping to sell more gracefully before the Friday jobs report. The fact that some Bovines are trapped yet again means that some panicky selling may still take place tomorrow once it becomes clear that a hoped for bounce will not bail them out before the jobs report. Naturally the intelligent dip buyers will likely be in place providing low bids into the panic selling perhaps offering a potential reversal into tomorrows close. Wishful thinking? Either way many of the weak holders that had intended on moving to the sidelines prior to the report may have already done so by 8:30am Friday and that's a good thing.

Our hunch is that maximum fear and uncertainty are likely to materialize between 12pm and 2pm tomorrow. Hopefully the NASDAQ will give back another 1% - 1.5% from today's closing prices providing a nice entry point for the dip buyers in the late afternoon. Clearly the dip buyers need to step up into that forecasted weakness in order to demonstrate that the recent snapback rally has legs.

While we cannot dismiss the fact that the payroll numbers may be hotter than hoped for we are relieved that the expectations for such a report seem to be slowly baked into the cake. Should there be any signs of an "under number", the market will indeed be poised for a continuation rally. Regardless of the actual payroll number there will be plenty of other ammunition for the Bulls to spin positively i.e. average hours worked and the unemployment rate.

If You Held a Taser to Our Head:
All in all the very nascent uptrend is still intact and has not suffered any meaningful damage from today's decline. In fact today's action helps build the wall of worry that can take this rally further. Importantly the dip buyers need to show their stuff one way or the other no later than Monday's close … assuming 10 KATRILLION jobs weren't added in June.

See you tomorrow.

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