Today’s Market Guidance

Financial Overview:
The stock market is concerned about growth and they are also concerned about EU debt. With the markets scheduled for a monthly US non farm payroll report today, it could be a very negative session for stocks. In fact, we suspect that the stock market is poised to make a bad number feel worse and perhaps the market will also make a decent number appear to be partially negative. In short, to turn the stock market back up today the US economy has to show itself to be much stronger than expected. Unfortunately seeing a positive Non farm payroll gain for the month of January, might also be washed away by a jump in the unemployment rate or because of a series of upward revisions from 2009, which are supposedly going to be finalized today. In conclusion, if one sees a patently disappointing headline payroll reading, we would expect the market to come under aggressive pressure. There would seem to be three negative factors for every favorable factor today.

DOW:
There would appear to be little support on the charts until the 9,737 level in the March Mini Dow. However, unless the non-farm payroll report shows a bigger job gain than 10,000 jobs (which is at the high end of expectations) we expect that the bear camp will continue to pressure stock prices. In other words, we think that one should assume that the trend is set to remain down today unless the payroll reading is real a 'game changer', as a favorable jobs number won't alter the concern toward sovereign debt in the Euro zone.

A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. The market is in a bearish position with the close below the 2nd swing support number. The next downside target is now at 9742. The next area of resistance is around 10129 and 10342, while 1st support hits today at 9829 and below there at 9742.

S&P:
The current wave down probably won't end without another big range down washout on the charts. With the March S&P seemingly flirting with the 1050 level and the next critical support zone not seen until the 1036 level the bear camp seems to have the technical edge! The markets were already in a funk and without a distinct change of sentiment in the wake of the US numbers today, the bears will prevail. It is even possible that a minor gain in jobs will fail to reverse the downward tilt.

The daily stochastics gave a bearish indicator with a crossover down. Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The market's short-term trend is negative as the close remains below the 9-day moving average. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is 1031.25. The next area of resistance is around 1081.25 and 1109.25, while 1st support hits today at 1042.25 and below there at 1031.25.

NASDAQ:
The 1700 level looks to be the next downside target in the March Nasdaq. While some players might suggest that part of a disappointing payroll reading is factored into place already, we would suggest that little of a patently negative payroll figure is factored into prices. We would think the Nasdaq is capable of hold up better than the rest of the market but that might be little solace if the markets are presented with another month of job losses. In order to turn the trend around probably requires a trade back above 1750 today.

US Dollar:
With a quasi gap up move in the Dollar to new highs overnight, it is clear that the Dollar is garnering flight to quality buying off credit travails outside of the US. In fact, with the markets entrenched in their concern toward Euro zone debt issues, the US debt issues are apparently being swept under the rug. Not only is the currency trade discounting US debt levels, but the trade is also apparently capable of bidding up the Dollar, even in the face of slack US payroll readings. In other words, the flight to quality mode is in force and therefore the Dollar probably rallies slowly in the face of 'as expected' number or it could rally aggressively in the wake of soft numbers. It is possible that too much weakness in the numbers will take the bid out of the Dollar and give it to the Yen and Swiss. However, with the Swiss handcuffed by the EU debt situation and weakness in the Euro currency, the Dollar might only have competition from the Yen today. There would appear to be little resistance in the March Dollar Index until the 81.00 level.

Gold:
The gold market has seemingly remained under pressure overnight in what appears to be a patently negative macro economic outlook. While the concerns of EU debt is being seen as a millstone around the neck of most physical commodities, the addition of a gap up trade in the US Dollar overnight has seemingly added to the pressure on gold prices. As if the bull camp didn't have enough concerns, the trade overnight also picked up on talk that the Vietnam Central Bank was selling gold. Some gold bulls have to be extremely discouraged with the breakdown in prices this week in the face of a potentially serious flight to quality situation. In other words, debt concerns toward the Euro zone, in most conditions would probably have served to lift gold prices, but instead the gold market has settled back into a classic physical commodity market status. Certainly gold could see its flight to quality status rekindled, but in the short term, gold looks to be the victim of Dollar strength and equity market weakness. As in a number of other physical commodity markets, the gold bulls need to see something definitively positive from the US payrolls to tamp down slowing concerns and also to tamp down the flight away from risk instruments. In the current equation, risk instruments are those markets that look to benefit from a global recovery track. Key technical levels on the charts today might be the even number $1,050 level, or the late October low of $1,029.

Silver:
With May silver prices falling to the lowest level in months, it was clear that the silver market was being presented with technical and fundamentally orientated selling pressure again overnight. Clearly a gap up trade in the Dollar rekindled confidence in the bear camp again but with ongoing global equity market weakness also in place again it is possible that silver and other physical commodities were simply being dropped because of classic slowing fears. While a positive US payroll report could bailout the bull camp in silver today, it is unclear if a decent US payroll reading will actually be able to fully tamp down the concerns of upcoming problems from the Euro zone in the weeks ahead. Unfortunately, a minor decline in daily silver exchange stocks looks to be fully discounted in the wake of the markets intense outside market focus. In looking back at this week's action, the silver market has clearly become disappointed with physical demand prospects and it also seems that both silver and gold have been knocked down because of a flight to quality condition in the marketplace.

Crude Oil:
Trading in crude oil has been choppy and two sided overnight, and while the market has been able to bounce from overnight lows, we are not convinced that the selling bias has completely ebbed and that leaves downside price risk in place. Seeing a weaker global equity market trade and a stronger Dollar overnight suggests investors are continuing to scale back risk and that will also leave crude oil vulnerable to additional liquidation selling and that may also still limit rally attempts in oil. While crude oil was certainly swept lower yesterday on the broad based commodity selling wave tied to the rally in the Dollar and as investors reduced risk, the situation that triggered the sell off remains in place and that gives the bear camp in oil a clear edge. The higher trade in the dollar overnight suggests concerns over European sovereign debt default remain high and the risk that these problems will hamper an economic recovery in the Euro-zone is undermining the demand outlook for oil. Macro economic sentiment for a recovery in oil demand this year has been further damaged by this week's news showing slow US service sector growth and an unexpected jump in US jobless claims. In fact, with concerns mounting over a 'jobless' recovery in the US, part of the selling yesterday in the oil may have been the market pricing in a bearish outcome for today's Employment report. This week's EIA report also showed the fundamental setup in the energy markets remains quite negative with oil stocks up sharply, the refinery operating rate falling to a fresh non-weather related 20 year low and total product demand still 2% below year ago when the US was in the depths of the recession. The forecast for OPEC oil exports to rise by nearly 600,000 barrels per day in the four weeks out to February 20th also adds to the bearish supply side view. Therefore, fading macro economic optimism has left the oil market with little else to support prices. Today's US employment report will certainly help set the market tone and impact the early direction in crude oil. We suppose there is the chance that yesterday's sell off in oil may have fully priced in any bearish employment news. There is also speculation that trouble at a large hedge fund may have exacerbated the break in oil prices yesterday. But since the sell off yesterday was widespread across many commodity markets, we are concerned that even if the employment news is surprisingly bullish that a rally attempt in oil could be cut short if the Dollar continues to gain upside traction or investors continue to reduce risk. Crude oil looks to have found some temporary footing near this week's lows, perhaps finding some support from news that Chinese refiners continue to process crude oil near record levels in February. But that price support looks fragile. And given the variety of negative factors facing this market, including a harsh political regulatory environment, we are skeptical that even if a better than expected employment reading is seem it will be enough to provide lasting macro economic optimism and price support to crude oil. We see the potential for another volatile trade that could push oil in both directions this session. Overhead resistance for April crude oil is at $74.64, the 200 day moving average, and then near $75.00 while a break under $72.80 will put the market on course for an eventual test of the $70 price level.

Natural Gas:
Although the natural gas market held up better than the other oil markets in yesterday's selling frenzy, the economic uncertainty and outside market influences could result in another volatile trading day that leaves downside price risk in place. The strength in the dollar overnight and weak equity markets suggest investors are continuing to scale back risk and that could put pressure on natural gas lower, especially if crude oil sees another sweeping decline. The key factor provided price support to the natural gas market is a prediction for frigid temperatures to return to parts of the US heating region next week and this forecast has given a solid lift to natural gas in the early overnight trade. With some weather forecasters expecting temperatures in the east to be more than 10 degrees below normal in some areas and in the Midwest more than 12 degrees below normal next week, rising heating demand will certainly help trim fuel supplies. The cold weather outlook should provide a measure of support for natural gas which was also evident in yesterday's trade. In fact, the cold weather outlook seemed to be the reason natural gas was able to recover yesterday following a bearish storage report which showed a draw of 115 bcf which was below most trade estimates for a 121 bcf decline and also below last year's draw of 194 bcf and the 5 year average decline of 178 bcf that left total fuel supplies 6.6% above the 5 year average. But despite the bullish weather outlook March natural gas has failed at several attempts to move above the key resistance near the market's 40 day moving average which is at $5.558 today as we suspect lingering concerns over ample supplies and weak demand has the trade a bit hesitant to lift the market into a higher trading range. Today's report on employment could have a big influence on natural gas trading since we suspect the market could be pressured if the news triggers a big bearish reaction in influential outside markets. On the other hand, seeing a bullish employment surprise when combined with the cold weather outlook, could be enough to trigger a rally back above critical resistance at this week's highs. If that occurs, the next upside targets for March natural gas are at $5.668 then near $5.75.