Market Analysis for Apr 1st, 2004

Critical Levels Ahead of Friday's Jobs Data
By Mike Paulenoff,

The indices today took off right after the Institute of Supply Management (ISM) data came out. I'm not sure if it was better than expected or not, but it certainly wasn't disappointing in the same way the Chicago area Purchasing Manager's Data was disappointing yesterday.

In any event, both the E-mini June S&P and the E-mini June Nasdaq took off, and in the case of the S&P took off right to the top of its range and broke above yesterday's high, which was 1129.75, into new high ground at 1134.75. The 1136 area is our cut-off point for this particular upmove. That is to say, a sustained move above 1136 would argue that our next target was being triggered, which would be around 1150.

So, a very critical level here for the E-mini June S&P.

Of course, after the high was made, there was an orderly pullback to about 1129, and right now we're at 1132.50. So we've embarked on another high-level congestion area, and that usually means we're going to grind higher and still make higher highs.

The one big caveat in all of this is tomorrow's employment data, which comes out at 8:30 am Easter. We all know that in the past several months those numbers have been extremely disappointing. On the initial disappointment, though, the market has pulled back and then taken off because of the underlying implication interest rates will remain very low and the Fed has no reason to raise rates.

On this particular data coming out tomorrow, once again the Street is looking for 160,000 additions to payroll. One of these months the jobs data will improve a lot, or that is the thinking. The question is how the market reacts to it. Should we believe that the market will take off at 160,000 jobs and that the Fed will not doing anything about that until it has a series of monthly jobs increases to suggest that the economy from a jobs standpoint is starting to accelerate? If that's the case the market can go up until perceptions are that the Fed doesn't want it to anymore -- until the Fed doesn't want the market to continue to mop up the liquidity and then takes the liquidity away to try to cool things off.

I'm not sure that's in the cards or not. But if there are 160,000 additions to payroll tomorrow, you'd have to suspect that will trigger a spike to the upside in the E-mini June S&P, probably to the 1150 area, and the bond market will be going the other way. It will be interesting to see after the initial kneejerk whether the stock market can sustain the gains or whether it starts to watch the bond market's reaction and potentially the Fed's reaction to the first considerable improvement in the employment picture.

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