While the markets overnight showed a bit of conflicted action there appeared to be some pockets of strength and that suggests the markets aren’t totally afraid of the US number flow. Certainly the corrective action off the recent highs reduces the vulnerability in the market today and given such widespread dismal expectations for the payroll report, one gets the sense that some part of a bad number has already been baked into prices. However, it was clear over the last two trading sessions that a wave of slowing psychology has crawled back into sentiment in the wake of the Wal-Mart sales data but apparently “hope” of a stimulus plan, (that might be as big as $1 trillion) seems to be capable of backstopping wild eyed economic anxiety. Most traders think that the numbers will be bad, but there also seems to be a feeling that the market is capable of shaking off the readings quickly. At least over the last two months, the stock market has been able to digest bad numbers and with the large stimulus offer being seen as a life jacket, those on deck of a ship in trouble, just aren’t as concerned as they could have been. We see a move down early that is rejected later, unless the non farm payrolls losses are bigger than 600,000 and then the recovery looks to be pushed into next week.
DOW: We continue to stick by the idea that the March Mini Dow sees the 8,308 level as a level that equates to full year of slowing in 2009 and also to the idea that a Mini Dow price of 9,048 is essentially factoring a recovery sometime just after mid year. While some might doubt the wisdom of taking too much guidance from a single number, the number today is simply “huge” as the trade wants to hem in some type of date for recovery. In our opinion, even in the face of a bad number few players (the Fed and Treasury included) would have expected a defined end of the recession to surface so soon in 2009! As suggested already we suspect that the market will see a pulse down but after a slide to 8,441 we think a major decision will be made by the trade. Either the numbers are much worse than expected or the bulls look to regain control late in the session or early next week.
NASDAQ: We are somewhat surprised to see the Nasdaq holding together this week in the face of a series of dismal tech sector guidance reports. We also suggested early in the week that the Nasdaq was less overbought than other sectors of the market and that could reduce the magnitude of the sell off in the Nasdaq. Up trend channel support today off a November and December spike low probe is seen down at 1244.75 but it would be surprising to go through the early action today without an initial wave of selling, but the action after the initial pulse is probably even more important for hints on the ultimate trend ahead.
S&P 500: Up trend channel support off the November spike low and the late December spike low in the March S&P is seen at 890.10 today. However, given a recent record spec and fund net long in the E-Mini S&P, one has to view the S&P as the most vulnerable to negative readings this morning. Unless the market is poised to abandon its resiliency that has been seen since the November spike low, we look for a spike down rejection today, with our low projections seen at 886.50.