…the next two days’ price action depended on the ES being supported at 1103.00 after the ISM report came out at 10:00 am today?  This question was posed by a reader that responded to our earlier post, and the answer is yes.  There are key reports, such as Retail Sales, Durable Goods, CPI, ISM Mfg, Employment Situation, etc. that become even more important when one or more major indexes are at the extreme of a range.  When markets are illiquid due to orders being pulled ahead of and just after news, the markets are easiest to manipulate by large players to produce favorable chart patterns.  So, the reaction is always more important than the news to judge what will happen next.

In this case the S&P 500 (and by extension the ES) was testing and attempting to break to new highs this morning.  The ISM report was a bit bearish, and the ES traded down to 1104.00, but then got an immediate 4 point bounce, which suggested the news might be able to be shrugged off.  1104.00 was in the middle of the daily R2′s (a component of floor trader pivots), between 1103.00 and 1105.50 (a potential reversal area from the support and resistance chart in the morning report).  The day-session-only R2 was the lower at 1103.00, so we wanted to see this act as support.  Every swing decline or advance begins at some moment, which could be the result of a single buy or sell order that causes a cascading series of reactions.  The juncture between time and price this morning just after 10:00 am at the 1103.00 price level appeared to have the qualities that could set off such a reaction.  Traders would be a bit wary of attempting to support the ES at highs ahead of Friday’s Employment Situation report after a bearish major report caused a selloff (which did not materialize), so this factored into the analysis as well.

The ES did break through 1103.00, first to 1102.75, then to 1102.25, but each of these breaks was followed by a quick rally of a couple points.  Important support and resistance levels should be given up to four ticks to allow for large traders testing supply or demand.  After these minor breaches, the ES traded sideways for an hour, but never below VWAP, so it was safe to assume a selloff had been averted for the time being.

10:14 am EDT:  ISM disappointed a bit and Pending Homes was mildly bullish.  The ES is now trading at day-session-only R2 at 1103.00, which longs need to support to run to new highs today.  If it does not hold, the other scenario from the morning report is more likely, which is down to sideways action until Friday.

The Precise Take – ES back to test highs ahead of Employment Situation Friday

Leaders Analysis:  Correlations are back in alignment, with equities, the EuroYen and gold (1200!) all advancing and the US Dollar and long term Treasuries retreating.

Medium Term Analysis:    Yesterday had a small range, but had good volume and a strong close, which setup a continuation of the move overnight.  There are a trio of reports today at 10:00 am, which will likely allow traders to either take the ES to new highs or to retrace lower and consolidate ahead of Friday’s Employment Situation report.

Trading Today:  The preferred early trade is to buy from 1096.00 to 1099.75, which includes the daily R1’s and overnight VWAP.  However, we may simply wait until after the 10:00 am reports to gauge the reaction in the markets.  If the ES heads down strongly on the reports, we will be careful…

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