10:57 am EDT:  The ES has rallied nicely after the premarket lows, but has encountered resistance at the 1024.50 to 1027.50 potential reversal area.  30 Year T-Bonds have intraday reversed from a high of 123’25 down to 122’8 (big move), which is close to the critical 122 level under which equity longs will want to see a close.  Gold is impressively holding its ground above 1000 after an earlier dip to 987.  These moves will need to continue today to signal that the equities correction is near completion. 

In the ES, we’re still biased to the long side as long as price is above 1016.00.  1017.50 to 1019.50 (about to be hit) is a potential long entry area; however, we would be careful to protect the position on a return to intraday highs around ~1026, as another failure will be a shorting opportunity.  Below 1016.00 and there is a good chance that the ES will sell off to new lows.

The Precise Take – T-Bonds break out, equities looking for support on Employment report

Leaders Analysis:   As we noted intraday yesterday, 30 Year T-Bond futures broke above critical resistance of 122 and now sit around the mid 123’s.  A weekly close above 122, which is now very likely will make it more difficult for equities to continue to advance.  Also, the EuroYen forex cross has now broken below its 200 day moving average overnight, and a close below is also bearish for equities.

Medium Term Analysis:  The one positive for equities is that they have continually reversed when things have looked their most bleak.  To quantify, however, we need to see a daily close above the 1043.50 market profile point of control for longs to prove they can at least hold the current lows.  Looking to next week, there is very little in terms of scheduled news that would provide an upside impetus for equities.  Unless today reverses substantially the damage done yesterday, the best case for the longs is probably a repeat of the June earnings season with lower to sideways action until another excuse for a short covering rally can be found (a la Goldman earnings surprise).  The danger is that an October correction, which everyone seems to expect, can easily feed on itself.

Trading Today:  As we write, the Employment Situation report has disappointed and the ES has traded to strong Fib support (actual low 1013.50).  The 1011.50 (weekly S2) level should hold early and we are willing to trade long against it give the extreme

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