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Will the Market Sell Tomorrow's Employment News?
By Mike Paulenoff, MPTrader.com

Here we are two hours before the close of trading on Thursday, and if you left three hours ago and came back to your office now and watched the screen, you may not see a whole lot of difference in the prices. That's mainly because of the influence of the employment numbers tomorrow for May, which the Street is expecting will come out at about 220,000 additions to payroll versus 288,000 in April.

Having said that, though, there are two interesting things about the way today's trading is going: One is that oil prices are getting clobbered again. They're at $38.55 in the nearby July contract. With one more day left in the week, crude oil prices are pretty much at the low for this week after having made something like 40-year highs -- some very long-term high. After having made a new high earlier in the week, the last two days' weakness in the crude oil has taken it below last week's low at $39. If crude oil closes tomorrow below $39, then we have for the week a key downside reversal.

The last time we had a key downside reversal in crude oil was in September 2000 up near $38 a barrel. That key downside reversal inaugurated a move that didn't end for a year and took prices down to $16.70 a barrel from almost $38 a barrel. So, I'm not sure what will happen this time. However, the key reversal is a fairly solid indication for that market that a confirmed change in direction may be very close in hand.

Having said that, the other very interesting thing about today's trading is that despite that very good news technically and fundamentally in crude oil, the stock indexes or the E-indices appear to be igoring that. The indices can't seem to get out of their own way today despite the very positive influence of crude oil.

That raises questions, and perhaps the indices are exhausted from the run-up from early May and really are in need of more of a correction than they've had so far.

In terms of the E-mini S&P, the high yesterday was 1128 , and we're trading right now at 1122 ,, which is hardly much of a pullback or correction in the overall larger scheme of things. It may be that if we are looking for an excuse to be very cautious on the long side or to be slightly aggressive on the short side, it's the disconnect right now between plunging oil prices and the E-mini indices. We've had a rally from 1075 to 1128 , in the E-mini June S&P, and that upmove must have discounted a considerable amount of good fundamental news, not the least of which could be some very positive data tomorrow.

So it would not surprise me that if the data is strong tomorrow in excess of 220,000 additions to payroll, the indices do not react well and instead it becomes a sell-the-news event.

Regarding the QQQs, basically the Qs have been trading in a sideways range for the past week, between roughly 36.06 on the low side and 36.60 on the high side. Right now as we speak they're at 36.23, stuck in the lower portion of the range, which happens to be situated at the top of a rally from the May 17 low at 34.11.

So from a larger perspective the Qs are holding up extremely well. From a near-term perspective, given the decline in crude oil prices, the Qs aren't acting too well and don't show very much gusto to rally further.

It's my inclination here, given the underlying near-term technicals, which are relatively weak, to expect the Qs to break 36.06 and to move down to 35.80, perhaps 35.75, and that could happen in the absence of the of economic data tomorrow.

Once the data come out, depending on what they are, I guess we'll kneejerk in one direction or the other. But I think that the risk is really for a sell-the-news reaction tomorrow that takes the Qs below key support at 36.06 and 35.75 towards the 35.40 next target zone.

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