The March nonfarm jobs data was released on Friday, but aside from a handful of loyal futures traders and a room full of machines, the report went largely unnoticed. Why the Bureau of Labor Statistics (BLS) bothered to release the report on a day when equity markets were closed and unable to react is a bit bewildering. Nonetheless, the report was released and was undeniably bearish. The question, however, revolves around participants' ongoing interpretation of bad and good economic news.
Bearish traders continue to insist the markets are on the verge of an awakening, and any day now the broader indices will be forced lower. The obvious problem with this line of thinking is that it's failed to play out for months, if not years. And make no mistake about it. Many investors, traders and talking heads who are bearish today have sported a bearish posture for a considerable period of time. My simplistic view of the market is that it's difficult to adopt a staunchly bearish posture when we haven't even triggered a new swing low.
Bullish traders appear to be interpreting Friday's employment report as a warm fuzzy blanket that will protect them for a quarter point rate hike in June. I'm no economist, and I'll never play one on TV. But I suspect we'd need to see a pretty dramatic shift in data between now and June for the Fed to justify a move in rates. Remember, the Fed has told us it's data-dependent.
And in keeping with my simplistic view of the market, we've all seen how quickly demand has faded at new swing highs. This, to me, suggests all evidence continues to point toward a responsive market where aggressive and strongly held (higher timeframe) directional biases are hazardous to one's financial health.
When it comes to the jobs data, if you want to better understand the report and how the Fed might react to it, I suggest you give Tom Graff's article "5 Reasons Why Jobs Report Isn't Scary" a read. Tom was looking for a hike in June, but believes the March employment report just took that hike off the table.
From a short-term traders' standpoint, all we're concerned with is the market's perception of Friday's March employment data. Because equity markets were closed on Friday, the number of active participants were a pittance of what they ordinarily would have been. So right off the bat, I want to take the bearish price action with a very large grain of salt. That said, it's difficult to interpret a 20-handle plunge in the span of 40 minutes as anything but bearish.
As you study the chart above, note that the E-mini S&P 500 futures (Es) contract is still trading (and closing) within the bounds of our 2035-2070 balance area. Value during Friday's low-volume session was established at 2039.75. But that doesn't change the fact that price is still closing within composite balance.
If we step back from the chart a bit and consider how many times the contract has hammered against the mid- to low-2030s over the past month, one would expect the dam to be close to breaking. And to be frank, my gut says the passive demand parked near 2035 is quickly being whittled down a paper-thin level. In the end though, I need value migration to confirm my gut. So until value migrates beneath the mid-2030s, I will remain cautiously responsive (fading the edges of composite balance) during the day timeframe.
As we prepare for Monday's regular session Es auction I want to begin the day with a heavy focus on 2033.75-2036.25. If the bulls are going to avoid a more extended period of pain, it's imperative they prevent value from shifting and the contract from closing beneath that area. In my view, a collapse beneath 2033.75 would immediately shift our focus down toward 1990 (the 200-day exponential moving average) and the mid-1950s (support from mid-December 2014).
As long as buyers remain capable of absorbing existing supply in and around the mid-2030s, I'll continue to operate in a responsive manner. Put another way, until value migrates beneath 2033.75, I'm willing to look for reasons to fade the present weakness. A rebound from Friday's levels would have me targeting 2050 as a primary target. Beyond that, Friday's sellers are likely to find themselves scrambling for protection as traders bid prices up toward 2057.25 and 2066.25.
Additional Notes:
1. I began discussing MDC Holdings (MDC) in the March 31 Trader Daily, and while I have no idea how the stock will open Monday's auction on the heels of that crummy jobs report, I do want to note Thursday's strength in both the stock and the iShares U.S. Home Construction ETF (ITB). A close above $29 would look very bullish for the stock. The tightest I'd want to run a stop-loss would be a close back under $28. And the most liberal I'd want to be would be a weekly close beneath $27.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS.
