It is all about numbers. An expansion of R1 S1 followed by a contraction is equivalent to a wide ranging day followed by a narrow range day such as a doji day. In an extended uptrend, this setup represents trend exhaustion. It would be prudent to scale out longs and position shorts. Today was a no brainer. Shorted at pivot 722ish and closed out at S2 718ish. (yes, it was Oct 720 puts. named the pivot option) It was an easy trade. Since it closed below pivot of 722 today, it is in near term shorting territory but long term uptrend is still intact. Watch r1-722, pvt-720, s1-717, s2-713 tomorrow. No buying below 720 and take note of 715, 713 and 708 when shorting. Below 708, the game is over and the market is in long term down trend. It is not surprising to see the market chop around until Friday. There is also the 30 minutes downward sloping bullish channel and eventually it will swing back up.
The ADP employment report today indicated that only about 60K private sector jobs were created last month. If the forecast is 100k jobs come Friday, a total of 40k government jobs are required to fill the gap. The probability of that happening is slim. Further, the report stipulated that the financial and retail sectors were worst off and it is not difficult to deduce that the sub prime problems have already over spilled.
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