We have compiled the following long term charts that show points accumulated overnight (just ahead of) the Employment Situation report, then during the day session on the day of the report, and the combination of the two. 

 
Above is Feb 94 to Dec 09, and below is a zoom in of Sep 08 to Dec 09.

For 2009, Jul 09, Oct 09 and Nov 09 were negative gap days.  The day sessions were positive Aug 09 to Nov 09, but negative Dec 09.  What’s interesting in the longer term chart is that day sessions were positive in SPY throughout must of the late nineties bull run, but were not so during the subsequent bull run.  Perhaps that’s indicative of the jobless recovery.  SPY bottomed in Oct 02 on a higher low in the day session.  After that, there was a rally in day sessions, but then there was a resumption in the down trend until Oct 08, that lasted even during the bull market into Oct 07. 
 
Meanwhile, the gap stayed mostly flat and resumed its uptrend in early 2005.  Further, during the entire recent down leg, the worst drawdown in the gap was 2.34 SPY points, with most of the losses to SPY overall coming during the day session.  Accordingly, holding overnight ahead of the report (at least since mid-2003) appears to be more profitable than holding during the day.  It should be noted that there are outliers where SPY has gapped down ~1.50 points and it is not uncommon to have ~1.0 point gap downs, so caution should always be exercised when holding into the report.

With markets always in flux, it is important to not only be aware of sector rotation, but of time rotation.  As we have demonstrated previously, trends emerge as to which time of day is best to be long or short.  In light of a recent Bespoke Investment Group study regarding bullish Mondays (htBilly), we have expanded their work to consider both the overnight gap and day sessions for each day of the week…

Mondays have been clearly bullish since September, 2009, with weekend holders of long positions not being punished since the last week of September.  This suggests that traders may have become complacent and that the next down gap could be a bellweather of a material correction.

Tuesdays have been a mixed bag since September, offering no clear edge.

Wednesday has had a slight bullish edge since November, when the gap and day sessions are considered.

Thursday days have been bearish since late October.

The last two Fridays of December were holidays and the one previous was flat.  Prior to that there was a strong surge overnight ahead of December’s Employment Situation report, but then it was dangerous to hold longs from Thursday to Friday morning since late September.  However, Friday days have largely been kind to longs since November except for on the December Employment report.

As we pointed out in our morning trading report, Employment Situation Fridays have been turning points in 2009.  They have either sparked rallies or been used by institutions to sell into, marking interim tops.  As we are now at highs, longs should take heed…

Click for larger image.

10:21 am EDT:  The ES sold off from 1132.50, the midpoint of today’s value area, and has now found support at 1127.50, one tick above the lower end of the projected range (1126.25 to 1127.00).  VWAP just acted as resistance and the ES looks about to test the low.  If, after this test, the ES can trade above VWAP, then it should return to at least the value area and possibly the upper end of the projected range (1135.00 to 1136.50).  If price chops around too much at the lower end of the range, a further selloff is possible.

Below is the chart promised in the morning report.

Click for larger image.

The Precise Take – ES continues low volatility action ahead of Employment Situation Friday

Leaders Analysis:   We said we would be watching 30 Year T-Bonds and the US Dollar yesterday, the latter of which is very strong overnight, but still in its trading range.  T-Bonds have been hugging trendline resistance for three days now.  If they do not break to the upside soon, another leg down will be forthcoming (which would likely be on tomorrow’s Employment report).  Notably, the EuroYen was as strong yesterday as it was weak on Tuesday.  With it very close to breaking its Monday high, it will be a leader to keep an eye on as well.  Unfortunately, given the mixed bag, the leaders are equities neutral for the third day in a row.

Medium Term Analysis:  Employment Situation Fridays tend to mark reversal points.  As we are still at highs, we are more than likely to have an interim top with either downside action, or sideways then downside action.  That is, unless, the ES can manage a material rally and close near highs.  We will post a chart on the first update today (free registration).  The explanation for this phenomenon, which extends prior to the 2009 rally is likely that large players use the volatile number to extend a rally and sell into it, with reality catching up in subsequent sessions.  After institutional support evaporates, prices fall.  However, if equities have been correcting, the opposite happens and a new uptrend tends to start.  This latter case is largely limited to the 2009 rally.

Trading Today:  After exceeding weekly R2 by two ticks yesterday (high of 1135.50), overnight, the ES traded down to day-session-only R2 (1127.20).  The lower end of the projected range is about the same as yesterday, 1126.25 to 1127.25.  The upper end is a bit higher 1135.00 to 1136.50, as we will consider a nominal new high to combined session R1 (1136.50) as a potential bull trap.  Though we always consider it aggressive to attempt to pick a top or bottom outside the projected range, it is particularly so today, especially…

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