Bulls Pull the Market Back

As I speculated in the Marketcast yesterday, the Weekly Jobless Claims became the "crud" in the middle of two nice slices of bread. The number came out worse than expected at -626k vs. the -580k consensus. CSCO also reported earnings this morning, which traders decided to sell a little, but not a huge amount of selling. In fact, in earnings there are a number of big name companies that are actually up pre-market after their reports: V, MA, and CAH. Also, WMT and many other Retailers are reporting January Same Store Sales. The reviews are mixed with some stores up a little pre-market, and some down.

The market-driving news is the Weekly Jobless Claims. Traders may have been selling the pre-market futures down a little ahead of the report as a follow-through from yesterday afternoon. CSCO was a bit of a catalyst as well, but as I just wrote, earnings and other reports this morning were actually mixed and some were even bullish. So the Weekly Jobless is playing out as expected - the crud Jobs Report that traders were worried about in the middle of what could have been a nice sandwich of Employment Reports.

The SPY (and SPX) is set to gap open below yesterdays low and probably confirm a small, Bear Flag type of formation from the past three days. It's not a big pattern, but the market may head towards the low of the pattern in the 812 - 815 area on the SPX.

Here is a chart of the SPX just after the open:
(click on image to enlarge)

If the SPX drops through 812, then 805 becomes the next target. I speculated that the recent corporate layoffs would start having an effect on the Weekly Jobless Claims sometime soon, which is what Big Money was most likely worried about yesterday (which caused the afternoon selling). Well, it was soon.....sooner than next week.....we're getting the effect right now, which means that the market may stay Bearish for several more trading days, even if we get a temporary bullish pop from the Employment Report tomorrow (which, if it's still hanging on to its recent corellation with the ADP Report, will probably come out better than expected).

I'm not anticipating a move back above 840 on the SPX today, but if it happens, then that becomes a stop out point for any bearish puts. It's always possible to get a wild day and a wild swing, so I will be ready, but right now I am weighted towards a bearish day and a downswing. An intra-day move above 840 would mean the Bulls were hoping to catch a little fast-money bump from the Employment Report tomorrow. A close above 843 would be a signal that the Bulls are completely blowing off the Weekly Jobless report, which would be an interesting and significant signal. We'll see what today brings.....

12:30 pm MT: Intra-day Update: The Bulls pulled the market back after the early day drop. Traders are blowing off the Weekly Jobless report and forming a near term Double-Bottom in the market. The Banking Index is Hammering on the right side of it's Double-Bottom. This is a significant signal today. If market investors are willing to pile in to the market despite the "current" data (Weekly Jobless), then the focus can't really be on the other "lagging" data (last Month's Same Store Sales, or the ADP or ISM reports). Big Money has decided that the only direction from here is up - no matter the current economic conditions. They are making a fairly significant signal today - that they are near term bullish, most likely because they perceive the market as being too "oversold" despite the current economic conditions.

Here is a current chart of the BKX (Banking Index) showing the Double-Bottom with a Hammer:
(click on image to enlarge)

Here is a current chart of the SPX showing the near term Double Bottom forming:
(click on image to enlarge)

If you ponder this for a moment, you will realize that the market is buying worse news, and more current news today than it sold yesterday. The ADP Employment data yesterday was better than expected and it was January's data and the market sold off mid-day.....most likely because it was concerned about a possible worse-than-expected and current news report from the Weekly Jobless Claims. The market got exactly what it anticipated, a worse than expected Weekly Jobless.....and traders decided to buy it hard today. This opens the door for a nice, bullish upswing, perhaps back in to the 920 area on the SPX, because if the Bulls are willing to dog-pile on a news day like this, it would have to take a horrific, other-worldly, jumbo-catastrophic, end of all life as we know it type of news report to stop these Bulls from buying the next few days.....And the Employment Report tomorrow is unlikely to do that.

So this is an interesting and significant development today, I will watch for call opportunities the next several trading days, and perhaps even contemplate holding some positions overnight. As a side note, I answered a question about the 840 and 843 levels in the comments that you may find instructive.

1:10 pm MT: Intra-day Update: The market is getting a little toppy intra-day and rolling over a bit, so it will be important to see if the Bulls can close the deal today and actually rally a little and finish the day above 843 on the SPX. You can see the toppy price action on the 30m or 60m charts. If the overall signals hold true today, then the Bulls will push the market up at the close, we shall see.....