While yesterday did bring in some first-of-the-month money which initiated a brief equity rally, that rally was held off by the bears with sellers mounting their most intense momentum in recent memory.
The headline going into today’s trade is the US employment numbers report scheduled at 8:30 a.m. EST. Today we will look at a technical picture of the S&P futures using the fifteen-minute candlestick chart below, which covers price action since the beginning of this week.
First, we have observed a pattern over the years in the equity markets heading into non-farm payroll. When the market trends hard as it has this week, then at the end-of-the-week, many traders have already positioned short, or do not want to sell with the market down so far. Because of this, short traders place their stop orders to get out of the market, and at some point, either right after the 8:30 number or after the 9:30 open, the market tends to go in a direction contrary to that week’s trend.
This pattern does not hold true every time, and we are not basing any trades on this idea alone; however, we are mindful that this pattern may take place even as the charts are giving us a bearish short-term story.
Currently, the price of the ESH18 is just above the big round 2800 level after a weak opening trade this morning down to 2797. We do not want to sound dramatic, but we do not have any support levels to the downside between current price and the mid-month low made on January 16th at 2769.25.
That is not to say that we will refuse to buy until that level; however, 2769.25 is the only lower level that we are now watching.
We have more to go on looking at the upside. First, the lower green trend line connects a sequence of three short-term lows this week and may offer some resistance at 2805.75. Aggressive sellers may lean on this line; however, we will avoid doing so.
The grey shaded region on the chart previously represented support, but now that zone could potentially turn into resistance. The true measure as to whether bears will take intermediate control of this market will be whether they can maintain resistance at this zone.
The blue trend line, currently in the middle of the gray zone at 2815, is the next resistance level that bears must hold. Above that, currently coming in at 2821 at the top of the gray zone, is an orange trend line that has been useful for much of this week. We expect bulls to have a hard time fighting through this level. If the orange trend line fails, then the red trend line at 2830 would offer the next resistance.
We are still open to trading both sides of this market, using time, price and volume intra-day in conjunction with the technicals on this chart as our guide. We do favor selling rallies, especially near the top of the grey area.
Today’s 8:30 a.m. EST employment numbers should cause at least some modest market reaction, which could include sudden momentum and price reversal. Following the jobs report, Consumer Confidence will be reported at 10:00, although this report alone is not expected to bring much movement to the equity markets.