After the S&P sold off early in the day on Tom DeMark's call that the stock market was going to crash, it then turned around and rallied 18 handles.
The ADP number ( private employers ) added 175,000 jobs in January and the Institute for Supply Management's non-manufacturing index for January came in better than expected at 54.0.
ADP and the Friday non-farm payrolls number
The sold ADP number in front of Friday's jobs number should ease some fears when it comes to job growth. According to JPMorgan the ADP employment report has been accurate in predicting the private payrolls number since the change in methodology in October 2012.
However, the most recent report indicated that private payrolls increased 238,000 in December, which was 151,000 stronger than the change in private payrolls during the month. This may have damaged the credibility of the ADP report as a predictor of the more important BLS data, but the number will still be watched nonetheless.
For many years traders in the bonds would be glued to the ADP number for a hint at what the job number might look like, but like many things that used to work, the December numbers proved traders wrong.
Yesterday Federal Reserve Bank of Philadelphia President Charles Plosser said he anticipates the U.S. economy will expand 3% this year and expects the unemployment rate to decline to 6.2% by the end of 2014, signaling a faster tapering of the central bank's monthly asset purchases.
Where does the market go from here?
This goes back to one thing: Is the crowd too short? My answer is yes and you could see it over the last two days. The big 42- and 44-handle drops have the option players rolling lower and the hedge funds selling the S&P as a short hedge and in speculative short positions.
In other words, everyone is short. In this case we expect the S&P and E-mini to go back up a little. We gave out only a few downside levels and 1730-1735 was one of them. We now have two lows in that area, 1734 and 1732.50, yesterday's low.
It's our feeling that could be a good low and that the S&P could be on track for the 1775 level.
The Asian markets closed mostly higher and in Europe 11 out of 11 markets are trading higher. Today's eco calendar starts out with chain store sales, Challenger job-cut report, Gallup US payroll to population, international trade, jobless claims, productivity and cost, Daniel Tarullo speaks, EIA natural gas report, Fed balance sheet, money supply and Eric Rosengren speaks. Today is the countdown to jobs Friday.
"Run the sell stops! Run the buy stops!": that old trader's song is what this is about!
I have been very careful about projecting lower levels. The reason is I am always afraid when the sellers let up or get too short that the S&P will pop back up. That is what we are seeing this morning.
While "everyone" is supposedly negative and should be, it's foolish to think the S&P can't or won't rip the other way. While economics and earnings are the mainstay of the S&P, they are NOT the only driver; algorithmic and program trading are also.
The S&P has run a lot of sell stops in the last few weeks but it has also run a lot over the last few days. Yes there are a lot of numbers and earnings out today but the main focus is tomorrow's jobs figures. Everything else is secondary.
Our view is the S&P is trying to hold. That doesn't mean there won't be 10-handle drops. There will be sellers around for the open or just after; sell the early rallies and buy weakness. This is just for today.
As always, keep an eye on the 10-handle rule and please use protective stops when trading futures and options.
- In Asia, 9 of 11 markets closed higher: Shanghai Comp. closed, Hang Seng +0.72%, Nikkei +0.11%
- In Europe 11 of 11 markets are trading higher: DAX +1.20%, FTSE +0.74%
- Morning headline: "S&P 500 Seen Sharply Higher; Global Market Rally "
- Total volume: 2Mil ESH14 and 9.9K SPH14 contracts traded
- S&P Fair Value: 1746.24 (futures 3.51 higher at 8:09 AM ET)
- Economic calendar: Chain store sales, Challenger job-cut report, Gallup US payroll to population, international trade, jobless claims, productivity and cost, Daniel Tarullo speaks, EIA natural gas report, Fed balance sheet, money supply and Eric Rosengren speaks.
- E-mini S&P 500 1764.00+20.00 - +1.15%
- Crude 98.55-0.22 - -0.22%
- Shanghai Composite 0.00N/A - N/A
- Hang Seng 21423.131+153.75 - +0.72%
- Nikkei 225 14155.12-25.26 - -0.18%
- DAX 9251.58+135.26 - +1.48%
- FTSE 100 6555.07+97.18 - +1.50%
- Euro 1.3602