Setting The Stage: Jobs 8:30AM ET

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Our View

Are ES and NQ holding steady, or about to crash? I don’t think they’re headed for a crash, but they could dip, especially with today’s 155K non-farm payroll whisper estimate. I saw a headline saying, “Job data will be essential to the size of the rate cut in September.” Given Powell’s recent focus on the labor market, many traders believe today’s US payroll report will determine whether the Fed cuts by 25 or 50 basis points this month. I’ve given in to the idea of a few rate cuts before year-end, but a 50 bp cut? I just don’t see that happening, even with a disappointing jobs report.

Our Lean

Like I said yesterday, I want to be a bull, but every rally is being sold. It feels like all you have to do is say “boo” and the markets could fall. There are a lot of sell stops below 5506, down to 5475. Our lean today isn’t just about the jobs number, it’s also week one FRYday options expiration. One of MrTopStep’s Trading Rules 101 is fading the jobs number gaps when Globex volume hits 350k-400k contracts before the 9:30 AM open—this is a “bus too full” trade. Ideally, with the trend down, the perfect setup would be to sell a big gap up. Today is going to be pivotal for the Fed’s interest rate path. Below are Goldman’s and JPM’s SPX responses to today’s NFP. I can’t rule out buying a lower open for a quick pop to sell, but as I said, selling a big juicy gap up would be my preferred trade for today.

Today also happens to be the last day Fed officials can communicate publicly before a self-imposed premeeting quiet period begins. New York Fed President John Williams and Fed governor Christopher Waller are set to speak Friday morning after the jobs report is published, providing a final opportunity to set expectations for the coming meeting.

MrTopStep Levels:

How to use MTS levels

MiM and Daily Recap

The ES traded down to 5515.00 and up to 5537.25 on Globex, opening Thursday’s regular session at 5528.25. After the open, it traded 5527.75, rallied to 5534.75, sold off to a new low at 5525.50 at 9:36, and then rallied 30 points to 5555.50. It pulled back 20.75 points to 5534.75, then rallied 22.5 points to the high of 5557.25 at 10:28. After that high, the ES made a series of lower highs, dropping 64.75 points to 5492.50, then rallied 12 points to 5504.50, dropped to a new low at 5490.00 at 12:18, rallied to 5512.25, pulled back to a higher low at 5496.50, and then blasted up to 5528.75 at 2:03. It pulled back to 5518.00, rallied to 5531.25 at 2:54, and dropped 30 points to 5500.75 at 3:18. After the drop, the ES rallied to 5522.25 at 3:30 and sold off to 5502.00 at 3:48. The ES traded at 5509.50 as the 3:50 MOC imbalance showed around $1 billion to buy, then traded down to 5500.00 before rallying to 5516.00, closing at 5514.00 on the 4:00 cash close. After 4:00, the ES rallied to 5523.00, sold off to 5508.75 at 4:42, and settled at 5515.50, down 18.5 points (-0.33%). The NQ settled at 19,824.75, down 37.75 points (-0.20%).

In the end, it was like water in a bathtub, pushing one way, then the other. For the ES and NQ, it was a two-way street. Overall, ES volume was steady with 1.684 million contracts traded.

Technical Edge

NYSE Breadth: 41% Upside Volume
Nasdaq Breadth: 38% Upside Volume
Advance/Decline: 43% Advance
VIX: ~20.5

Guest Post

–Stock Traders Almanac

Tough September Off to a Rough Start

The bull market is still intact, but wait for a better setup.
September and October are historically two of the worst months in election years.
Expect choppy and sideways action over the next few weeks, with a likely test of recent lows.
This should set up a Q4/post-election rally, so be patient and ready for a better opportunity later in Q3 or early Q4.

The bull market is still intact, but wait for a better setup. Election uncertainty, extended valuations, some big earnings misses, and troubling economic data points helped the worst month of the year deliver an early blow.

Fund managers tend to sell underperformers, restructure portfolios, and window dress ahead of the end of Q3. Historically, September is also tough in election years, with some nasty sell-offs near month-end. The week after Quadruple Witching has been particularly brutal, with the S&P 500 down 27 of the last 34 times, averaging a loss of 1.06%. In 2022, the DJIA, S&P 500, and NASDAQ all dropped 4% or more.

September weakness and Octoberphobia continue to weigh heavily. While bullish election forces are still at play, the next few weeks may see more chop and sideways action, with a likely test of the recent lows. This should pave the way for a Q4/post-election rally. Be patient and ready for better opportunities later in Q3 or early Q4.