Trading Remained Mixed Ahead of Friday's Jobs Data

Good morning! The market barely managed to post gains in Thursday's session after yet another day of choppy action. The Dow ($DJI) added 6.26 points, the S&P 500 ($SPX) added 3.25 points, and the Nasdaq Composite ($COMPX) added 4 points. The indices initially followed through on the bullish sentiment I had heading into the day by gapping higher, particularly in the Dow Jones Industrial Average. The market was hitting upper trend channel resistance with the opening prices, however, and almost immediately began to sell off. The selling was rapid and steady into 10:00 ET when the August factory orders data was due out. As that data release approached, the S&P 500 and Russell 2000 began to round off at lows. They triggered reversal patterns right away following the release from the Commerce Department that new orders for U.S.-made factory goods dropped 3.3% in August, which was the largest decline in seven months.



The Nasdaq Composite again took the lead as it has in many of the recent sessions and quickly rallied first to the 5 minute 20 simple moving average resistance and then past it into 10:45 ET and into the morning highs, which served as price resistance. Early morning highs also hit in the S&P 500 at about the same time heading into 11:00 ET, but the Dow had an extremely difficult time and dragged its feet while the rest of the market climbed. While the S&P and Nasdaq were testing the day's highs, the Dow had barely managed to take back half of the morning's losses.

Trend channel and price resistance both worked together to halt the mid-morning rally. Due to the sharp upside momentum, the reversal off the highs began slowly, but the pace continued to turn over on the 1 minute time frame and by 11:45 ET the selling had increased, particularly in the Russell 2k. While I don't have a chart posted here, it formed a great Avalanche reversal pattern by pulling back off highs a bit, basing into 11:30 ET, and then quickly pushing through the support and back into the zone of Wednesday's close. It was the cleanest reversal pattern to take place mid-day.

The drop continued nicely into noon when it came into price support from earlier congestion and pivot levels on the 5 minute time frame and the 15 minute 20 sma. The indices again bounced, but while the momentum on the bounce was strong, the indices were now firmly in the grips of a trading range and I quickly warned those in the chatroom I hang out in to expect choppy trading and a narrowing range over the next two hours, which would take the market into 15:00 ET.



As that 15:00 ET correction period approached I found myself rather uncertain as to which bias to favor. The Dow was triggering a short setup on the 15 minute time frame, while the Nasdaq was forming a strong buy setup. While I favored the upside move, I could not completely disregard the Dow. It is unusual for the major indices to move in two contradictory directions during the primary trading session after the first few minutes of trading, but this is exactly what happened on Thursday afternoon.

The Dow fell into its first major support level at the morning lows which hit heading into 15:30 ET, while the Nasdaq was on its way to its first resistance level at about the same time, hitting the mid-day price resistance and first target on the long side as the Dow hit the first target on the short side. Of course, such divergence rarely hold for long, so given the relative strength of the Nasdaq, I took its side into the close.



On Friday all eyes are on the morning's jobs data. On Thursday the Labor Department reported that first-time filings for state unemployment benefits rose by 16,000 to 317,000 in the previous week. On Friday it issues its employment report for the month of September. Economists are expecting an increase in new jobs by about 115,000. From a technical standpoint, the market is forming a nice bullish pattern still on the 60 minute time frame. The indices rounded off at support in Thursday's session and this will make it very easy for bullish follow-through to play out into Friday. Monday's highs will be the first zone of resistance to watch out for , but can still break more easily in the Nasdaq and S&Ps than in the Dow.