Traders are in a dilemma

The S&P 500 Index closed at 1165.1, up 7.1 points on Friday. The U.S. lost more jobs than forecast in September as local governments fired educators and other workers to make up for declining tax revenue. lack of jobs is causing difficulty in consumer spending, the biggest part of the economy, limiting growth heading into 2011.

The larger-than-expected job losses raised hopes for more Fed action to boost the economy. Even though the jobs data failed to meet economists' expectations, stocks are rising because the report is one more piece of evidence showing Fed’s potential second round of easing. Friday’s report was a reminder that the U.S. labor market remains in the dead zone 15 months after the recession officially ended. That increases the odds that the Fed will take new steps to jumpstart the economy at its next meeting on Nov. 3.

Despite the significance of today's headlines, many investors remained on the sidelines. In turn, share volume on the NYSE failed, once again, to meet the 50-day moving average of 1 billion shares. Three months ago the 50-day average was at 1.5 billion.

Traders are in a dilemma. They can't long this market because it is at the overbought area. They don't want to short a market before the mid term election (the track record of the mid term election rally is very strong in that only one has been down in the 34 years since 1913 for the 5-month period starting at 9/30) and with the Fed pumping money in the market at the same time.

The only thing we can do is to wait for a trading opportunity.