Market Analysis for Oct 3rd, 2003

The markets this morning are all about the reaction to the employment data, which came out at 8:30 am Eastern and which surprised everyone. The Street was looking for a reduction of payrolls, and it came in as a 57,000-person increase in payrolls. That's not much but it does break the string of seven prior consecutive months of deteriorating data of monthly employment.

As soon as the data came out, the markets leaped, and if you happened to have been long the indexes, you made a windfall and if you happened to be short you took a significant hit. For our purposes we were out because while the unemployment data does elicit a significant reaction most of the time in this particular case, it was such a crapshoot that we felt it was unnecessary to be in the market at all.

That is why it has been such a frustrating day, because since 15 minutes after the data came out the markets have been perched at high levels trading in a very narrow range. We are getting extremely overbought on an intraday basis, which adds another element of risk to merely going in and buying the index because the index appears to be so strong.

At some point it'll have a pullback and we'll evaluate the pullback to see if it's that an opportunity ahead of another up-leg. However, at this time we're on the sidelines watching. That's the intraday picture.

The larger picture is very interesting, because both the E-Mini Nasdaq, which is trading right now at 1381.50, and the E-Mini S&P, which is trading at 1035 roughly, are within a stones throw of their September highs, and more than likely between now and Tuesday the indices will test those September highs. Those are at 1405 on the Nasdaq and 1039 on the S&P.

If the indices break above those highs, certainly the perception will be that the move will translate into higher prices. But momentum is lagging that of the previous move between the March lows and the September highs so badly that I think there's enormous risk in a continuation much above the September highs.

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