Price action will set up reaction to employment data

Price action and setup analysis

If Thursday’s recovery from a new low does hold… then Friday’s reaction to the Employment Situation report could be explosive. After all, holding a test of the afternoon bias-down parameters was bullish. The question is whether that bullishness was fully satisfied. And if satisfying that bullishness went beyond its prerogative.

Pattern points… (Setups and technicals)

1614.75-1616.25 broke lower Thursday. That indicated three things: more discounting ahead of Friday morning’s Employment Situation report, probably all the way into the news, and potentially down to 1590.00. Actually, there was more discounting, down to 1596.50 at Thursday’s noon hour low, but the balance of the session rallied nearly 28 points to test 1624.00.

So, was 1590.00 tested as close as it will be? Did recovering 1614.75-1616.25 begin a recovery? Despite closing 8-9 points above it, we don’t yet know the answers.

That’s because Thursday’s last segment of the rally was not sponsored by strong hands. The 8-9 point probe above 1614.75-1616.25 came AFTER the afternoon’s bias environment had lapsed, and the last 3 points printed after the cash session close. Recall my warning in the blog about the vulnerability to a short-squeeze above 1612.00 — that tends to be the product of weak hands.

Weak-handed as the extra recovery may be, it isn’t predictive of the reaction to the report. But it does require a rejection to behave in a certain way — dropping aggressively under 1612.00. Not maintaining an immediate break under 1614.75-1616.25 would suggest that sellers are marginalized.

What’s Next… (Outlook and opportunities)

Marginalizing sellers Friday morning could rally intraday to 1644.00 or 1648.00. Sellers retaking control would target a test of 1590.00 “lower prior highs,” probably to under 1585.00.

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

About the Author
Rod David

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog

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