Thursday’s Double-Edged Sword

February 5, 2004
Chris Curran

Stock index futures opened

Wednesday’s session still feeling a hangover from CSCO’s earnings
report. The ES traded in a narrow range off the open, until a
higher-than-expected ISM services report at 10:00 sparked some selling on the
news. The contract took a dip to S2 and the overnight low at 1,126, but good
broker buying formed a V-bottom and trapped the shorts. The rush to cover was
good enough to all but close the opening gap, before the futures settled in a a
choppy range above Tuesday’s session low and S1 at 1,129.50. The session was a
repeat of yesterday as support finally broke after the lunchtime lull, but this
time the contract hit an air pocket of stops through the session lows that
didn’t stop until S3 at 1,122.50 was breached. The attempt by the bulls to get
something going ran out of steam at 13-min chart and 62% Fib resistance, and the
futures just bled lower for the rest of the session.

The March SP 500 futures closed
Wednesday’s session with a loss of -9.00 points, and finished just off the low
of the session. Volume in the ES was estimated at 771,000 contracts, which was
ahead of Tuesday’s pace, and above the daily average. Looking at the daily
chart, the contract broke its bear flag and is sitting just above the head &
shoulders neckline at last week’s low of 1,121. On an intraday basis, 60-min,
30-min, and 13-min charts are still sitting below resistance, but we’ll want to
keep an eye on a 60-min AB = CD pattern to see if it has any more left in it.
The pattern would be negated on a breakdown of the 1,122 level.

Thursday morning gives us both
Q4 Productivity and Weekly Jobless Claims at 8:30 ET. Claims estimates are
calling for a slight decrease to 340,000 from the previous week. Productivity
is expected to be off from Q3’s 9.4% growth, but still expected to post a
respectable increase of 3.0%. Either way, the number is going to be a
double-edged sword. With a lower-than-expected number, the bulls will say that
companies will have to hire new workers to get productivity back up, and with a
higher number, the bears will say that with the current workforce still
productive, there’s no reason to hire new workers.