No Stress and Everybody Has a Job

Pre-market futures are up sharply as the market is set to gap again in the wake of better than expected news this morning. None of the news is actually that new or breathtaking, but the initial reaction to the reports is positive. The bank stress tests have been headlined to death for the past week, and today is no exception. Most traders have already priced in the concept that the banks have done "better than expected" on their "stress tests." The final news (until the media decides it needs more headlines or the government decides it needs more ammo) is that the 19 banks tested will have to raise "only" $74.6b in capital to meet the demands of any potential "stress." So, good news.

In addition to the stress test, the market got the Employment Report figures this morning. Remember that the ADP report on Wednesday started me writing about how all three jobs reports would now probably show "better than expected" results, which is exactly what happened. And if I can predict the jobs reports that easily, so can fund managers.....all the way back on Wednesday. So this morning the Nonfarm Payrolls number came in at -539k vs. -600k expected, which put another big tailwind under the pre-market futures. Hourly Earnings dropped to 0.1% vs. 0.2% expected and the Unemployment Rate rose to 8.9% from last month's 8.5% (although the 8.9% was in-line with expectations), so their are some red flags in the report. In addition, the government is half way through hiring 140k people for the upcoming census, so 72k jobs were created by taxpayer money, compared to a drop of 6k government jobs last month. That means that if you adjust the Nonfarm Payrolls number by the number of net jobs not created by taxpayer money then you get a real number of -611k vs. -600k. However, I seriously, seriously, seriously doubt that fund managers will care about the way in which we got to the payrolls number, they will only care about the actual number - and it beat expectations.

The pre-market futures on the SPY, as of 7:00 am MT, are up over $1.35, which would be even larger than yesterday's big gap. The SPY is set to open well over $92.00, which is a sizeable jump, but still almost $1.00 under the highs of yesterday. The past three days have all seen bullish gaps at the open followed by profit-taking for at least an hour (although yesterday saw profit-taking all day). I speculate that the market will do much the same thing today, which is to gap open and then see some profit-taking for a few minutes to an hour. Yesterday the SPY tried to base after the profit-taking but couldn't break back above 91.75 intra-day and then faded away. Today, just like the past three days, watch for the early wiggle/profit-taking, see if the market will base along after the profit-taking, and then reverse back to the upside. If we get a bounce out of an intra-day base then the SPY could try to push up and test the 93.00 area, but if the SPY fades down through the 91.00 - 91.25 area then we may have a day like yesterday.

Turning attention now to the index, here is a chart of the SPX:
(click on image to enlarge)

The same general support and resistance areas are still there. The 920 - 940 area is still resistance, and the 880 area is still support. The SPX will open up in the low 920's and then probably wiggle for a while. A fade down through the 905 - 910 area would be a red flag and signal that the bulls are on the run. A fade through 900 would confirm a good probability for a move back down to 880. Just like the SPY, look for intra-day basing for any potential bullish plays, and keep an eye out for profit-taking early after the gap.

9:35 am MT: Each time the SPY has reached into the 92.75 - 93.00 area the past two days it has been met with strong profit-taking. The SPY (market) held 91.50 and bounced up about 30m ago, but this move looks like it will double back and test the 91.25 - 91.50 area. This whole process is the basing that needs to take place if the SPY has a shot at pushing back to the 93.00 level again later today. The 91.00 - 91.25 area is still the first critical support zone for the day.

There is the possibility that a few bulls try to push the market back to the highs right now, but if they do, I speculate they will be too premature and that there will be some overhead selling in the 92.50 - 92.75 area again. The bulls will probably need a little while longer to base and gather themselves if they want a realistic shot at 93.00 before the end of the day.

10:35 am MT: The SPY did shoot up to the 92.50 - 92.70 area and then sell a little. The market is heading into a rolling price action intra-day. We may see a Rectangle or Ascending Triangle type of price action form on the 15m charts for the next hour or so. The bulls will be aching to take the SPX to the upper zone in the 930 - 940 area, so there is a decent chance that they push the SPY to 93.00. If the bulls manage to get the SPY to 93.00 by the last hour, then I think there will be some weekend profit-taking in the final 45m or so. The day is bullish and will stay bullish unless the SPY drops below the 91.25 area. There is a lot of enthusiasm over the Employment Report this morning, just as I speculated. I have read a couple of headlines that picked up on what I warned of this morning - the higher unemployment rate and the Nonfarm Payrolls number being propped up by taxpayer money - but just like I also warned this morning, I speculated that fund managers would largely ignore the red flags and throw a party for the stock market anyway. The bulls press on.

10:48 am MT: There is the next rollover intra-day at resistance. We'll see if the market holds the 91.50 area and forms a Rectangle or Ascending Triangle.

11:07 am MT: The bulls keep pressing resistance. There isn't much to say other than the day will stay bullish unless the SPY (market) drops below the 91.25 area.