August unemployment report was much worse than expected, fueling speculation of an inter-meeting Fed rate cut and igniting more debate in Washington D.C. on the need for more economic stimulus via business tax incentives. Non-farm payrolls lost in excess of 100,000 jobs (-50,000 expected), and the unemployment rate jumped to 4.9% (4.6% expected), just below the 5% level that is considered critical to the consumer strength.
Those are not the immediate concern, however. Today's news could give the plunge to the lows on the S&P 500 and the Nasdaq. Certainly the futures have tanked despite a mild positive before the employment numbers based on the Intel mid-quarter update last night.
S&P futures have bounced up off of the year lows that correspond to the March low on the S&P 500. Indeed the Dow and Nasdaq futures have touched lows and then rebound a bit.
On the open the market will most likely follow the futures lower and then attempt a rebound. The question will be whether the S&P 500 hits the low (1081) on the open and bounces from there. If it does that is a positive, but we have to watch for it to break lower after a brief rally off the opening low. The point: playing the S&P (OEX) on the open can be very tricky as it is trying to find support at the lows. We are going to let it bounce back up and then roll over to give us room off of the lows. We always have to watch out for the lows or slightly below as support on a reversal.
Same with the DJX play on the Dow. The Dow has a further cushion to fall to the low, and it can give us a bounce and then roll over as well for more downside. Dow futures were down 105 but have recovered to -85. We will see a lower open, most likely a bounce, and then a roll back over.
The Nasdaq and the QQQ can hit the lows as well (1619.58), but it won't do it on the open as the futures tanked to minus 30, but have since rebounded to -12.50. It will fall on the open, most likely rebound, and then we look for it to roll over in the first half hour to hour.
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