Good morning traders, this morning will be all about the employment situation that takes place at 8:30am. This could send us back down which could spark up a wild round of sale side activity or it could ignite a short-lived rally. The reason why I say a short-lived rally is just above is the weekly market makers expected move, this is a powerful level and it will take a herculean effort to break free of that level once we are in its orbit. On the other side is a wild round of sale side activity because we are already outside the lower edge of the weekly market makers expected move meaning market makers have to dynamically hedge with any activity to the downside. Dynamic hedging is where market makers in an effort to protect or hedge a broad basket of stocks buy or sale S&P 500 futures to offset losses and the further we go outside the weekly market makers move’s lower edge the more they have to sale futures. We could make it back to the lower edge of the market makers move and even go a little pass it but in order to pull off of the weekly maker makers expected move we will see a huge volume spike either way. If we are on the top side of the line and get volume spike of 5000-8000 contracts per minute, then that would be a sign we are breaking thru and going higher. However, if we see those volume spikes on the lower side of weekly market makers expected move this is a sign, we are going lower. The weekly market makers expected move lower edge (408.7) is almost magnetic itself because it is a seem in risk where bulls can be temporarily happy as well as bears so we will tend to stick to, be drawn into and chop around these areas. I am still looking for a blow off top kind of a day to signify the beginning of a correction and it could happen today but so far, I don’t have that feeling that it will be. Despite that we have to stay ready cause it could happen at any time. We could get some sale side activity today but I don’t expect a full roll over because skew is at a high level. When skew remains above the 130 level it says to me that people are more prepared for a drop or out size move.
Key levels to watch for … Resistance (jack) 407-408(queen) 409-410and (king) 411-413area. Support (jack) 406-405 (queen)404–403and (King)402-401. The main thesis for the day is a BEARISH bias closing below 405.13 with a projected target/low of between 405-401. Alt thesis is BULLISH bias closing above 405.13 with a projected target/high of between 405-412. The main channel we are in is between 397-416. Yesterday, market strength and breadth opened relatively flat and popped up immediately and fail just as fast to its lows and consolidated on the rest of the day. I expect strength to open much stronger but possibly find some weakness in the middle of the day. We have Dissonance between the technical side which is (BULLISH) and the Quant side (BEARISH bias). The futures have a bearish bias for the day with dissonance between the technical (bullish) and the Quants (bearish). Scenarios for the day:
1) Expanded Range Day structure. we could get a premarket rally. Consolidate around a target for a while then break off and go test lower levels. Vise versa 34% probability
2) Trend day up we open gap up and start with a push back toward the previous close. We find support on or before the previous close then begin the uptrend for the day. We usually find midday chop around either possible queen or king resistance area (key to watch today is for a failed trend day where we fall down from target) 34% probability
3) Rounded reversal day type structure. We could get a continued push higher toward jack or queen resistance area and find midday chop around either queen or king resistance before going back down with the same energy or force we went up with the first part of the day or vice versa. 32% probability