First Reaction to NFP

Recent articles, CNBC, and other financial media seem to be converging on the same theme.  A positive jobs report.  Consensus expectations have gone up as the market  averages have gone up.  Thus, consensus will be tougher to beat.  Now I still expect overnight strength leading up to the report.  But it seems more likely now that the first reaction to the report will be to sell it.

From 4:00 PM to 8:29 AM

I would not want to be short during that period, from close to right ahead of the non farm payrolls tomorrow.  In fact, I would be looking to get long to try and capture a few points forecasting a  slow upward drift leading up to the NFP in the overnight session.  The market is showing underlying strength, and refuses to stay down.  I know the put call ratios are ridiculously low and the bears are almost nowhere to be found.  That will come to matter eventually.  In a bull market, the market goes up steadily and grinds higher, with sharp, brief selloffs.  We are close to one of those sharp brief selloffs.  I expect it to happen next week.

Dip and Run Pattern

We got the dip in the first hour, and now we're running back higher.  I can feel the demand for stocks underneath.  Every dip is bought aggressively, even if its just a few points.  We may have a blowoff top scenario if the nonfarm payrolls report comes in positive.  A finish near the day's highs is very likely today.    Hard to fight the tape when we're not that overextended.

Overnight Weakness

There seem to be a bit of pre-nonfarm payrolls jitters in the overnight market.  Any weakness either in pre market or in the first hour of the regular session will be a buying opportunity.  For a daytrade, I believe the close will be higher than the open.  I think there is still money that's looking to be put to work on any slight dip.  So dips are probably buying opportunities.  But beyond Friday, I am bearish due to the lack of bears and overeagerness of funds buying risky assets.

Let Them Roam

I was anxious to get short today but after seeing the restrained trade in the first hour, I opted to wait.  It feels like the institutions' ammo is running out, but I think they have a little powder left.  They are probably just waiting for the nonfarm payrolls report to shoot their last bullet.  I got flat and am waiting to see what the institutions do tomorrow.

A Little Sell Into the Close?

It feels too pat for the market to finish strong today, so I have taken a little sell position into the close expecting a small selloff, maybe down to 1130 into the close.  Put calls are ridiculously low on the CBOE again, equity put call at 0.50.  Not a huge amount of confidence however.

Flood of Money

The only way to describe the action.  There is just a lot of money looking for a home, away from safe assets and into risky assets.  The commodity markets are not big enough to handle the inflows in an orderly fashion.  Thus you get the disorderly moves higher in oil, gold, silver, and copper.  Institutions are very bullish right now, and are reaching for anything to buy.  I am still not seeing the higher volume that I like to see before I sell aggressively.  I planned on selling today but the action is not to my liking.  I will wait.

Early Strength

The ADP employment number was around expectations, and we've gone higher.  ISM Nonmanufacturing data comes out at 10:00 AM, I expect it to beat expectations.  With institutional money flows still pouring in, I expect a strong 1st hour of trade and then a selloff.  I will be looking to sell if we can get to around 1136-1138 on the ES.  I don't expect any fireworks till nonfarm payrolls on Friday morning, so the downside will probably be muted. 

ES DOM Changes

I've noticed since the beginning of the year that the ES DOM bids and offers have gotten much thicker.  Where before there used to be between 500-1000 for the best bid and offers, now there are 1000-2500.  Now, it is common to see bids and offers of 3000 to 4000 a couple ticks away from the last price.  That was rare just a few months ago.  Part of this can be attributed to the lower volatility, which makes firms more willing to make large bids and offers around the market price.  The Depth of Market book has much more size now.

In 2008 and first half of 2009, the best bid and offer sizes were much smaller.  They were usually between 100 to 1000.  Market makers were fearful of getting hit by a big adverse move.  The book was much thinner despite the higher volumes.  Now, the volumes traded are much lower but the book is much thicker.  The market makers are no longer fearful.

Lid At 1140

The SPX at 1140 will be a very tough nut to crack.  We got close today, getting up to 1136.4, but it was rejected.  Any more attempts from now till Thursday between 1136 and 1140 should be a good short entry.  Any strength Wednesday morning will be a welcome opportunity to short.  The ADP employment report at 8:15 AM Wednesday should be closely watched.

Volume Rising

I am starting to see some more volume come in, more than yesterday, despite the weaker moves.  Equity put call ratio on the CBOE is very low for the 2nd straight day.  Currently below 0.5.  We are nearing a short term top.  I will be building a short soon.  Not much time left before we get a meaningful dip. 

Don't Underestimate the Liquidity

The Fed has pumped in historic levels of liquidity to pump up asset markets that it is hard for this market to go down.
Yes, it is too much money chasing too few assets. The value of the assets is meaningless right now, because money has to be put to work or you get 0% on your cash.
Banana Ben has singlehandedly rebubbled up the economy. This is bubble economics.  It is pure liquidity and it cannot be underestimated. $1.25 Trillion of MBS being bought along with $300 Billion Treasuries is a huge amount of money pumped in. This doesn't include the stimulus pork that is coming down the line and has already been put to work.

Why do you think oil is over $80 and gold is over $1100 with a crappy economy? We are reinflating asset bubbles and the Fed will not act until its way too late. That's been the pattern for several decades. It is not going to change with Bubble Ben.
This is why you are seeing the stock and commodity markets walk on water, float in the air with ease. Don't fight it yet. Let it rise without you or even go in there and ride it higher.
I am looking for a short entry but I'd like to see more volume.  Unless we get some big move today, I will probably wait till Wednesday.

Putting Money to Work

The first day of the year is when many institutions deploy cash due to mandates, policies, tax reasons, etc.  Anything but market reasons.  They don't want to wait, and have bull rushed this market.  This effect should wear off gradually as the week goes on.  It still feels too early to short, so I have no position.

S.O.S.

Weak dollar, strong commodities, strong stocks.  We gap up, run higher and don't retrace.  Seen this type of tape hundreds of times in 2009.  No need to be a hero.  I am mostly on the fence here with small probing sell orders.  Gold is a decent sell opportunity at these prices.  We may squeeze a bit higher for 1 more day, or this could be it.  I will be building short positions if we go higher from here.

First Day

The commodities are very strong in pre-market trading and the dollar is weakening, especially against the commodity currencies.  A lot of this strength is attributable to funds allocating money into commodities.  It seems like a lot of the selling in commodities in December must have been liquidation / tax related.  As history foretold, equity futures are higher.  I will likely be getting out of my overnight holdings by the open. I am reluctant to short the open due to institutional money flows and positive seasonality.  ISM Index number comes out at 10:00 AM.  I expect it to beat expectations.