2:14 pm EDT:  While we did get a more than ten point tradable bounce after hitting 1052.25 early, the second trip down to test the overnight low proved too much and the ES has sold down to just below monthly S1 at 1042.00.  Next support is long term pivot confluence from 1033.75 to 1035.75, then volume support at the Nov 2 09 swing low at 1025.00 on the ES continuous futures chart.  We won’t necessarily get there today, but probably some time next week. 

The US Treasury is benefitting from this, as the 30 Year yield finally broke through long term trendline and moving average support, which will make debt service costs a bit cheaper for it on the 10 and 30 yr issues its auctioning next week.  To put things in perspective, it took a 9% correction in equities to facilitate a 2% rally in T-Bond futures.  For now, it looks like this correction will eventually reach 15% or more, which makes for at least a 980 (ES) downside target.  That doesn’t mean there won’t be large up days, but the prevailing trade will be to sell bounces, and that will likely last for several more weeks.

9:45 am EDT:  The ES has already sold off to weekly S1 (1056.75) pre-market and opened in between the 4:00 pm and 4:15 pm closes.  This changes the game plan a bit as, any contrarion benefit of fading the gap is gone.  If the ES heads lower, we should get a tradable bounce somewhere 1050.50 and 1052.25.  However, this is a slightly agressive long because it is below weekly S1.  To the upside, we still like 1068.00 to 1069.00 as a possible short.

The Precise Take – Equities trying to hold on after mixed Employment Situation report

Leaders Analysis:  The US Dollar Index has been on a tear and came within one cent of our 80.44 to 80.54 target overnight, from which it has backed off a bit.  If it is going to take a breather, this would be the level from which to do so.  Correspondingly, the EuroYen had its biggest down day since July and has bounced from strong long term pivot support.  10 Year T-Note futures have broken through resistance, but 30 Year T-Bonds have not been able to push through.  Despite the strong equities bearish movements over the past two days, given the overbought/sold status of the Dollar and EuroYen at strong support/resistance, the leaders are equities neutral.

Medium Term Analysis:  The headline numbers for the Employment Situation came in with a better than expected unemployment rate of 9.7% (best since August), with a monthly drop of 20,000 payrolls, which is toward the lower end of expectations.  It looks like the report will be spun as bullish.  After yesterday, bearish sentiment has taken hold strongly and any rallies will be met with both long liquidation and strong shorting.  A major hedge fund created to take advantage of the unique opportunities presented in late 2008 announce it would close recently, stating that the easy money had been made.  Accordingly, the general profit taking in the markets can fuel a more substantial correction in equities in the coming weeks.

Trading Today:  As we write, the ES has rallied ten points after hitting day-session-only S1 on the report.  As it is now trading above yesterday’s close, we must keep in mind the possibility that this is a false rally that will be reversed after the open.  What mitigates this possibility, however, is…

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