The past two days there has been a litany of economic news and it has been mixed.  You would not know that by the reaction in the market which has almost erased all of August losses in 2 sessions.  This goes to the point that at times the market wants to do what it wants to do, and it will cherry pick the required news as needed.

Wednesday, the Chinese PMI was barely expansionary but good enough for a huge surge premarket.  Then came a -10,000 print in ADP and it was brushed off.  The U.S. ISM report led to a second leg of a rally but released at the exact same time was a poor construction spending report, which also was ignored.

Yesterday, weekly jobless claims came in at a recessionary 470K+, and factory orders came in worse than expected.  But pending home sales was the only thing people seemed to focus on and it was another out of the blue data point up over 5%.

So out of the 6 domestic economic reports I listed above, 2 could be construed as positive surprises - and those were the 2 the market rallied off of.  Hence one must respect this fact as bad news being bought or ignored is just as important as good news being celebrated.  Sometimes you see the complete opposite where good news is ignored, and that must be respected just the same.

Today we have 2 big reports - ISM Manufacturing reported Wednesday gets all the attention (because apparently economists think the U.S. still lives in 1978) but ISM Services at 10 AM represents 80%+ of the economy.  (consensus 53)  And before that of course is the employment data at 8:30 AM... everyone expects this report be bad, so even if it is bad it won't be 'news' as long as it is not horrific.  In line is considered good nowadays as we are grasping for anything positive in the U.S. economy.  So it will be important to watch not so much the news but the reaction to the news.  If the 2 previous days reaction continues, it really won't matter what the news is because (apparently) the market will have priced in any negatives during the August swoon.  If however, we see selloffs on any bad news than the past 2 days was just an oversold dead cat bounce.

The S&P 500 is neither oversold or overbought here and we sit smack dab in the middle of our range of 1040 to 1130.... 50 points off the bottom and 40 points away from the top.  The 50 day simple moving average of 1081 yesterday was sliced through as if it was not there and now we sit right 1093 which is the 200 day (exponential) moving average.  Certainly the right number (even if horrid) in the labor data can cause us to gap up over that level in premarket... let's see if that happens.

For you Fibonacci fans, this range from 1040 to 1130 gives us these 3 levels:

38.2% retrace: 1074

50% retrace: 1085

61.8% retrace: 1096

Hence if we gap up and over 1096/1100 it appears likely we are headed back to the top end of this range we are stuck in.