The Precise Take – Equities down overnight ahead of Employment Situation Friday

Leaders Analysis:  The US Dollar Index rallied yesterday and was able to clear strong resistance overnight, trading up to just shy of minor fib resistance of 79.75.  It looks poised to rally to a long term pivot and fib target area of 80.44 to 80.54 over the coming weeks, which would weigh on equities.  Indeed, there has not been a strong down day in nearly a month, and that’s probably what it would take for the ES to clear the 1109 level.  The EuroYen is down overnight and looks set to test the 124.670 pivot low.  The leaders are slightly equities bearish, the “slightly” only because the Dollar could stall at minor resistance.

Medium Term Analysis:  The consensus for tomorrow’s Employment Situation report is a characteristically wide -40,000 to +75,000, with the usually on-point Goldman Sachs estimate at minus 25,000.  We mentioned earlier in the week the annual benchmark adjustment will be applied retroactively to the preceding year’s numbers and will be net -824,000.  This may or may not get attention, but our understanding is that the supranaturally bullish [small business] birth/death model will be adjusted going forward to be less bullish, which makes the statistical recovery in jobs for 2010 a bit less likely.  Short term, the opening gap on an Employment Situation report date often, but not always gets reversed, such that a gap up would end up with a lower close and vice versa.  Given that these dates also tend to mark equities reversals, a slight gap down near the recent lows in the ES would give a non-intuitively bullish edge for the day and coming week.  A notable exception is the July report that gapped down strong near lows and did not bottom until three days later.

Trading Today:  As we write, the ES is poised to gap down below yesterday’s low and has traded below the daily S2’s.  The upper end of the projected range is 1093.75 to 1096.50, which contains today’s value area along with several other forms of resistance.  However, the daily S1’s in confluence with yesterday’s low, from 1090.50 to 1091.50 is a potential reversal area where we would consider…

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