Keystone's Morning Wake-Up 11/2/12; Jobs Report

Trader's start November off with a strong rally yesterday, the broad indexes all moving up over one percent.  Tech led the way higher, however, small caps did not display the same enthusiasm. Tech and small caps lead the broad markets in either direction.  The euro weakness, as equities move higher, is perplexing since the euro moves up with equities moving up. This morning the euro weakness continues, dropping thru the 1.29 level now printing 1.2875. Perhaps traders are anticipating a rate cut next Thursday morning, now only four trading days away, since Europe must weaken the euro to create growth. Over the last couple weeks Keystone has highlighted the 1.2880 and 1.2830 levels where the equity market bearishness should increase.

Today is the all-important Jobs Report, the last major economic data point before the presidential election. As noted last month, however, that Jobs Report was the most important data point of the year and it did not disappoint with the dramatic drop in the unemployment rate to 7.8% sparking controversy. Today should be much more calm.  If the rate prints 7.9% today, that would be the Goldilocks number, under the whole number 8 so this would benefit President Obama slightly, while moving a tick higher from 7.8 so the conspiracy theorists would have to back off.  Just in case, Jack Welch is on standby ready to tweet another controversial message. The consensus is for 125K jobs and a 7.9% unemplyment rate. Also pay attention to the hours worked and wage data. If there are more folks that have simply given up trying to find work, and considering the election conspiracy angle, it is not unreasonable to see another drop in the rate under 7.8%.

The market push higher yesterday was driven by semiconductors to a large extent. The SOX begins at 379.50.  Keystone's algorithm identifies 380 as a bull-bear line in the sand and price did tag 380 yesterday before pulling back. The SOX under 380 affects markets negatively, a move above 380 will cause markets to push higher.  In addition, the bounce in volatility on Wednesday gave way to a plunge lower yesterday. The VIX is under 16. Watch VIX 15.90 as the bull-bear line in the sand. Market bears will create negativity with the VIX above 15.90. The bulls will rule if the VIX drops under 15.90. Commodities also popped yesterday due to China's encouraging data but obviously, since they stifle all free speech, their data is highly manipulated. Watch GTX 4920, bulls win above, bears win if the GTX stays under 4920. Of great importance this morning is that Keybot the Quant, Keystone's algo, will likely flip to the long side if any two of the above three parameters turn bullish. The bears need to push RTH under 44.44 asap to reestablish the downward move for the broad indexes.  Bears also need the XLF to move under 15.60 to create further market negativity. The Jobs Report in less than one hour will dictate the winner.

For the SPX today, the bulls only need one point higher, to punch thru the strong 1429 resistance, and it will be off to the races higher. Key levels are only a few handles away such as Keystone's 200 EMA on the 60-minute chart, and the 50-day MA. Price moving thru these levels guarantee an extended bull rally for at least several days.  The bears would have to retrace yesterday's 15 handle move and drop under 1412 to accelerate the downside. A move thru 1413-1428 is sideways action today. Keeping it simple, the Jobs Report will set the tone today.  Futures are flat right now but will immediately react to the news. In a nutshell, the bulls want to see SOX 380 and higher and VIX under 15.90. If so, Keybot (upper left margin) will likely flip long. The bears want to see the RTH drop under 44.44.

Note Added on 11/2/12 at 8:40 AM:  The Jobs Report announces 171K jobs and a 7.9% unemployment rate.  The rate was Goldilocks. Hourly wages were down, hours worked flat, so companies have no incentive to hire anyone. If hours are not moving higher, that means companies are handling work loads with the employees they have so there is no reason to expand. The 171K number is better than the 125K expected and is good news but typically recoveries should be experiencing over 300K jobs per month. The low GDP growth accounts for the ongoing malaise. In addition, 150K jobs are simply needed to handle the new employees trying to enter the workforce. Gold drops 20 bucks now under 1700. The euro drops now at 1.2852.  The futures bounced higher on the news but have flattened out with the S&P's up six. This would punch the SPX thru 1429 and test the critical 200 EMA on the 60-minute at 1432.33 and 50-day MA at 1434.46. The S&P's are up 0.48% while the Nasdaq is up 0.23% so tech is not leading the upside today, so far. This is also important in reference to the SOX 380 goal the bulls need.