The index fell by about 35 basis points during the day, with most of the decline coming in the final minutes. Yesterday, there was a huge selling imbalance of $4.1 billion, which helped create this wave of selling into the close.
Standard & Poor’s 500 index chart
The support level was 4700, an important level for a few days, which acted as a stabilizing wall in the 0DTE complex.
Since the monthly OPEX was so far away, I tend to think that 0DTE holds weight at this point. But with this level now broken, the next level from a gamma perspective will come at 4,650 today.
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The crucial jobs report awaits
Released today; The data will determine what happens from here. I think it’s simple: Data that comes in mostly at the same level or stronger is more likely to drive interest rates higher and the potential for a rate cut in March to May or June.
The average analyst estimate is 175,000 and this level does not seem too excessive, while it is expected to reach 3.8%. The figure circulating in Bloomberg stands at 185,000 today, while Calcchi shows an unemployment rate forecast of 3.7%.
Even if the numbers are in line with analysts’ expectations, it is difficult to argue that the Fed should rush to cut interest rates. It would take a major omission on key numbers and the unemployment rate to get the Fed to cut interest rates sooner rather than later.
More twists and turns are on the way
There doesn’t appear to be much tension in the market while waiting for the report with the cost of buying and selling asking expiry today at just 62 basis points, while the index stands at 14.
Sure enough, the VIX has risen from its lows of around 12 at the end of December. But that level of 14 was important, and a move above 14 would likely open the door to increased levels of volatility.
VIX 1-hour chart
I think the potential for volatility to expand is very good here, because for stocks, they need the right data. If the data is too hot, prices will fall; If the atmosphere is too calm, growth concerns and recession fears will escalate.
There’s not a lot of data to support the odds that the BLS made a mistake when announcing estimates because most of the jobs data we’ve seen has been consistent with a strong labor market.
Today’s data includes a government report, and government reports are not always the most reliable and tend to undergo significant revisions in a presidential election year.
S&P 500: A gap above or below will determine the trend
However, if the market can gap higher today and take out 4,725, it could be off to the races and perhaps even close the gap at 4,770.
If the gap is smaller, it will create a breakaway gap, which may put us on a path towards 4640 and perhaps lower than that in the coming days.
Hourly chart of the Standard & Poor’s 500 index
10-year bonds return to 4%
We also saw term bonds return to 4% yesterday; While they need confirmation with a move higher today, the 10-year Treasuries may have crossed that level, and that could set them up to reach around 4.1% to start, potentially reaching 4.25% and beyond.
Let’s see what today’s labor report says.
2024-01-05 11:46:00
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