10:20 am EDT:  The ES blew through the daily gap/pivot area, but has printed a spike high (on our 15 min chart) off the 10:00 am reports.  Though it exceeded our key resistance level of 1027.50 by a tick, we will stick with our game plan and look for shorts with tight stops.  Only above 1031.00 or on a retracement to 1015 would we look for longs.  Above 1031, and longs have a very good shot at new contract highs into Friday’s employment report.

On ISM, we quote Dave Rosenberg of Gluskin Sheff from his morning report (written before ISM was released):

So, it is a foregone conclusion that the ISM breaks 50 today — but that was already foreshadowed by the orders and inventory data in the last report.  But here is the reality — the S&P 500 started to price in 50+ more than a month ago. Recall that the ISM broke above the 50 threshold in February 2002 — and that was treated in the media as a watershed event too. But what happened was that even as production rebounded, consumer demand did not and as a result the economy relapsed in the second half of the year and by October we were back below 50 on the ISM and the stock market was testing new cycle lows. A little bit of a history lesson isn’t such a bad thing.

To put a little more granularity on the situation, on that day that ISM crossed above the 50 mark (for the first time in 19 months) back on March 1, 2002, the Dow popped 262 points that day as the herd jumped in right as the “smart money” was ready to get out. Three months hence, the Dow had done more than just give back that advance — it was down 660 points. The yield on the U.S. 10-year Treasury note jumped 10bps on that ISM>50 session, only to then rally 150bps in the next three months in one of the best buying opportunities for bonds in the past decade.