Stock Market Early Morning Insights – March 4, 2016

The early morning trade will be about the Nonfarm Payroll Report which will be released at 7:30 AM Central time. Traders must be anticipating a good report, but not too good which may force the Fed into raising interest rates sooner than later. As usual, once the report comes out, volatility should spike as traders digest the news and look for direction. Stock index futures are up around .20% as I write this, and have been edging up most of the morning. This is a snapshot from thinkorswim showing the pertinent data. You can find this under the calendar tab in TOS.

As I pointed out yesterday, I did not think that gold it finished its run, and it broke out of its trading range to the upside. Overnight the gold futures traded as high as 1275 90, but are down about $10 from that level. There is no question that in the short term gold prices are overextended, and the daily chart this morning has formed a Doji as I write this.

Not only is gold overextended, stocks appear to be overbought in the short term with 91% of the S&P 1500 trading above the middle Bollinger Band, and 24% of the S&P 1500 stocks are above the upper Bollinger Band. This does not mean that they cannot go higher, or that a rotation in groups cannot take place, but historically when the S&P 1500 becomes this overextended, stocks need a period of time to digest the gains, or pullback. I am not in the prediction business, but I’m only stating an observation based upon experience. The further stocks rally, the more likelihood of a pullback.

As for the strength in the market yesterday, it was in gold, silver, small-cap stocks, and mid-cap stocks. Transportation stocks also did well. I took a look inside of the S&P 600 small-cap index, and the S&P 400 mid-cap index, and the dominant groups moving up were banks, REITs, oil and gas, and utilities. Retail, medical equipment and restaurants were also strong. Homebuilders and brokers also had good days. The NASDAQ composite in the NASDAQ 100 were laggards, and biotechnology stocks were down.

The ES E-mini futures contract is trading near its daily high going into the employment report. The indexes have been working their way higher but we are running into a major resistance area around 2000 for the SPX. If stocks are going to go higher, I would like to see some backing and filling and testing for supply before this happens.

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