Hang Over

by Larry Levin

It looks like the Election Day party didn't last long, or was today's sell off some kind of hangover? But seriously, the market's slide had more to do two things; the low volume rally and more bad news.

Yesterday I said, The longer the low volume rally lasts, the closer we are to a correction. Think of a metal tape measure: it cannot go up from its housing forever; with nobody supporting it, it will collapse. That being said, the market can probably go higher still. If it reaches 1067.00 / 1075.00, however, I would expect the metal tape measure to fall. It looks like the initial apex of the metal tape measure was yesterday's high of 1006.50, because it sure collapsed today. The current weakness, which was also on surprisingly low volume, may drive the S&P to 925.00 / 920.00. However, if there is another rally from there, I still believe said metal tape measure could reach the originally mentioned zenith of 1067.00 / 1075.00. Time will tell.

The ADP employment report was released today which is a private estimate of Friday's monthly jobs report from the government. Its approximation of job losses was 157,000, while economist guesstimates are higher at -210,000. Unless the ADP has changed the way it calculates its figures, it should be on the low side as these numbers suggest. This report has been too bullish on hiring for 11 months in a row.

Next up was the ISM services data: it collapsed to 44.4%. Last month's reading was 50.2% and a report south of 50.0% indicates contraction. What's new is that this shows a sharp contraction in the services sector of the economy.

Inside the report we find deflationary forces are percolating. The index of prices paid for manufacturing dropped to 37 from 53.5. The prices-paid index on services fell to 53.4% in October from 70.0% in September, which was the largest one-month drop on record.

Tomorrow morning brings us the weekly employment, productivity, and labor costs data. I wouldn't expect any of it to move the market much. Watch the numbers above, be prepared for a potentially slow day leading up to Friday's data and above all else, follow the trend during the day.


Previous Day's Trading Room Results:

Trade Date: 11/4/08

E-Mini S&P Trades*
(before fees and commissions):

1) Engf sell @ 8:40am at 988.75 = b/e (1 lot)

2) Engf sell @ 9:35am at 997.00 = +.75 (1 lot)

3) 80% buy @ 9:55am at 991.75 = +2.75 (1 lot)

4) OTF buy @ 10:10am at 991.50 = b/e (1 lot)

5) PP buy @ 11:45am at 969.50 = +1.00 (1 lot)

6) Algorithm positions (13)...combined daily total...+11.00

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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