Today’s Market Guidance (From Profit Source Futures & FX Research)

Financial Overview:
While some market measures have managed a fresh new high for the move in the overnight trade, there is certainly the prospect for a significant volatility event in the wake of the US Non farm payroll report. Normally one would look at the rather stellar action in the equity markets and suggest that the trade is fully expecting something positive from the US payroll report. Apparently the market is garnering some support from early strength in bank and financial sector shares overnight. The positive overnight bias in stock prices is somewhat surprising in the wake of suggestions from the French Prime Minister that a new crisis in the global economy would probably be fatal! Nonetheless the trade seems to be holding out hope that the US economy is going to show further improvement today and we would suggest that improvement will be determined by the Non farm payroll reading coming in better than the prior month's 11,000 job decline. All things considered, one has to think that the bull camp has more risk than the bear camp into the number this morning and that anything less than a positive jobs figure might be cause for some minor profit taking.


Dow:
While the March Mini Dow did make a fresh new high for the move overnight and the index seems to have lost its lagging status to the rest of the market, we still get the feeling that the bull camp needs a perfect storm from the data to avoid a temporary correction. However, this market has been able to shake off negatives recently and in many cases actually spin negatives into positives and in the face of a slightly discouraging reading this morning, we would not expect to see an aggressive setback. In fact, it is likely that weakness off the numbers will be seen as a buying opportunity by money on the sidelines. In short, we think the risk is higher to the longs into the number today but unless the numbers are really bad, the pain felt by the longs might not be that severe.


The market made a new contract high on the rally. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. The outside day up is somewhat positive. The market setup is supportive for early gains with the close over the 1st swing resistance. The near-term upside target is at 10638. The next area of resistance is around 10607 and 10638, while 1st support hits today at 10499 and below there at 10421.
 
S&P:
The March S&P would seem to sit perched on a high shelf into the potentially critical Non farm payroll report. As suggested already, the S&P would seem to have priced in an actual gain in payrolls already this morning. However, as mentioned before we doubt this market is going to come under sustained and aggressive liquidation pressure in the face of a disappointing number. On the other hand, if the November reading is revised significantly higher and the December number shows losses in excess of 20,000 jobs that could set the stage for a 2-3 day corrective slide, that could be bought sometime early next week. If we were long S&P futures, we would consider selling a call and buying a put for the post report release reaction.


The market rallied to a new contract high. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The close above the 9-day moving average is a positive short-term indicator for trend. The outside day up is somewhat positive. The market setup is supportive for early gains with the close over the 1st swing resistance. The next upside target is 1146.93. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 1143.37 and 1146.93, while 1st support hits today at 1131.63 and below there at 1123.44.
 
NASDAQ:
The Nasdaq has certainly shown some corrective action and in some ways the Nasdaq has been the worst performing sector of the market over the last 48 hours of trade. Apparently the tech frenzy from the trade shown early in the week left that market segment overbought and perhaps in need of something distinctly up beat from the US payroll report. While we doubt that the March Nasdaq will fall below critical support at 1866.50 today, failing at that level would not be a good technical trade for the bull camp. We hate to fade the up trend pattern but the weakness in the Nasdaq (which has been the leadership market) into the numbers this week would seem to be a signal for a possible temporary spike down move to 1850. A spike down to 1850 should be considered an opportunity to get long this market at a very good level.
 
Gold:
In retrospect, the gold market has seen stories from all over the map this week. On one hand, the gold market saw signs that the Chinese were set to tighten credit conditions, but that potentially negative development was at least partially offset by a series of favorable Chinese retail gold demand stories and what appeared to be a very broad based commodity fund buying wave. The February gold contract sits above the 21 day moving average early this morning, which is located down at $1,113.10 today. As usual the trade will probably look to the direction of the Dollar today for guidance on gold prices. Some traders suggest that gold needs a not too hot and not too cold set of figures today, to come away from the reports with a positive track. However, some gold bulls are suggesting that the gold market is capable of de-linking with the Dollar, but that relationship has remained pretty strong lately. The bear camp is suggesting that the rally off the December lows leaves the gold market a bit vulnerable from a technical perspective today and with February gold contract starting the trading session out today right on the 50 day moving average there does appear to be the prospect for a significant technical decision today.


Silver:
The March silver contract in the early trade today sits roughly $1.37 an ounce above the late December lows. As in the gold market, the silver trade would seem to be poised to take a large measure of direction from the Dollar in the wake of the US Non farm payroll report this morning. While the gold market sits right on its 50 day moving average this morning, the March silver contract comes into the action today well above its 50 day moving average. Noted weakness in the copper market over the last 36 hours is probably serving as a slight outside market negative to silver prices today, especially since silver at times this week seemed to be attempting to embrace its industrial standing. While there was a modest decline in silver exchange warehouse stocks overnight, the silver market hasn't recently given that much credence to classic physical supply side developments. The bull camp is suggesting that silver stands a much better chance of de-linking with the Dollar today than the gold market, as silver managed to outperform gold on a number of occasions earlier in the week.


Crude:
While crude oil has traded a bit softer overnight, so far there hasn't been too much conviction behind the selling as the price action remains choppy ahead of today's critical employment report. Indications that the CFTC next week will propose limits on futures positions in energy may be undermining sentiment a bit. Crude oil has become technically overbought on the steep rally from the December lows and the market still looks to be under the profit taking influence inspired by yesterday's news that China raised rates leaving the global oil demand outlook a bit uncertain. China has been a major consumer of oil last year leading the global recovery and there are now some concerns that tightening liquidity could dent oil demand growth. But fears over China's oil demand should be tempered on news that Chinese refineries will be running at a record operating rate partly due to expectation of rising gasoline demand since auto sales are expected to remain robust this year. Frigid temperatures blanketing a good portion of the US have also supported the rally in oil over the last month on expectations of rising winter heating fuel demand. But with temperatures expected to moderate next week, that outlook has also given traders a reason to book profits. But the majority of gains in the oil markets from the December low have been based on signs that macro economic conditions are improving which is raising optimism for a strong recovery in oil demand. Most of the economic news over the last month has come in better than expected which has revived bullish sentiment and is attracting an influx of fund money back into the oil markets. Therefore, today's employment report has the potential to be a big market mover. Given the improvements in a variety of economic data last month and since jobless claims have declined considerably, some traders seem to be expecting a small rise in payrolls which would be the first gain in about two years. While the bull camp has the oil market's overbought status working against it, we don't think it will be enough of a limitation to prevent a strong upward move in crude oil on good economic news, especially if the employment data reveals a positive surprise. However, since the oil market is overbought, there is also a good chance that disappointing payroll news could inspire more extensive profit taking. After the initial reaction to the jobs report, outside market influences could also add to oil market volatility. Today's economic news has the potential to push crude oil in either direction, and traders may get a chance to buy March crude oil closer to $80 per barrel price. But we also suspect a price brake in crude oil off of a disappointing jobs report will end up being short lived given the firm bullish undertone the market seems to possess.


Natural Gas:
February natural gas has seen a two sided trade overnight, but so far the market still looks to be off balance following yesterday's sell off tied to a moderating weather forecast and a somewhat disappointing storage report. Yesterday, February natural gas hit the highest price level since last October on concerns that frigid temperatures this week could freeze well heads and disrupt production forcing fuel end users to withdraw supplies from storage. But with most weather forecasters now predicting a moderation in temperatures next week from the frigid cold seen recently to more seasonal readings certainly has the potential to limit the upside for natural gas. We also suspect part of the selling yesterday was tied to the natural gas storage report showing a draw down of 153 bcf which was in line with most traders' expectation, but a lack of a big bullish surprise seemed to disappoint some traders and inspire profit taking. Expectations for next week's storage report to show a 200 plus bcf draw should underpin natural gas prices to a certain extent. Today's US employment report also has the potential to be a big market mover. But with the temperature outlook turning a bit less supportive next week, we suspect February natural gas will continue to have difficulty sustaining rally attempts above the critical $6.00 unless a more positive outlook for a recovery in industrial fuel demand starts to take hold. While February natural gas may still have the technical potential to rally back above $6.00 if the employment data is bullish, we remain skeptical the market will be able to hold at higher levels. On the other hand, there should be enough weather uncertainty to limit the downside in February natural gas to the $5.50 to $5.40 price range.