Yesterday’s rally was absurd considering there was no institutional volume in it to speak of, but profitable nonetheless with a fade of the top back into the 40 handle as expected. It continues to base in balance at this area pre-market. A mixed bag in terms of sentiment leaning slightly to the short side overall, but there may be one last test of yesterday’s high. We are ready for either. In these conditions it is highest probability and lowest risk to simply scalp the edges and wait to get in breakouts for a bit to avoid head fakes. So fading 42ish short and 38ish long must be done with caution. A long trade which waits until 43 or so and trades into the retest of 45 is a good bet as well as a short at 37 or so into a test of the low. In both cases there is no benefit other than increased volatility risk of getting in early. If it does trade up and fail at 45 which would be the highest probability given the position trader volume picture, a fade there is another good bet back into 41 or on to 40 again. We just have to see how it shakes out off the open.



No gap, no news, market in balance overnight. Of note is that despite the rally the volume is tepid. Everyone is already long. Mutual funds report the lowest cash positions since 07 just before the big sell-off started that continued into 08′. This is a topped out market in our opinion – at least in the short run. We aren’t crazy about any breakout above the overnight high as it is breaking into strong resistance around the 40 handle. If it breaks long, we would rather wait for a potential fade at the 43 handle depending on order flow. The only other long trade we are looking at is a fade of the overnight low from 35 trading back into balance at 37 or so. On the short side there are several trades which bear looking at. A fade of the first test of either Friday’s high (38.75) or the overnight high (39.75) may bear fruit but it is hard to say which will pay off. WATCH ORDER FLOW carefully on these as you could get run over. Either is a feel trade back into balance between 38 and 37. If we break short we would wait for 34.50ish so as not to get trapped in the volatility of traders fading the overnight low. From there targets at the 33 or 32 handle range should be the ticket.

Big pop off the good employment number putting us into the 30s ahead of the open with an 8 handle gap or so. Lots of “skipped” over prices for some good rejection fades. The trend trades are going to be long if we were to buy the dips but ATO will look to fade and breakout with narrow targets for higher probability moves. The programs will kick in HARD at the open so watch the volatility and be a little flexible with the stops. We will look at the first test of the ON high at 31.50 for a potential fade back to 30. The breakout trade above 31.50 is riskier so we would wait to get long around 32.50 and target 34.50 and/or on to 36.75 but this is a MAJOR congestion area. WATCH FOR REJECTION STARTING AROUND 37.50!!! Take profits there and if it presses up you can get back in at 39.50 or so and trade to 40.50 and beyond. We would also fade a retracement to 28.50 and trade long back to 30 an/or on to 31 ahead of the high. If it trades lower 25.75 is another fade back into 27.50. On the short side we would sell sell 27.50 into 26.25 if it comes up as well as 25.25 into 24.50 and on to 23.50. At least a partial gap fill is very probable today.