The September E-mini S&P 500 made another successful test of last week’s low at 1037.00, indicating either fresh buying by bottom pickers or fear over selling in the hole and getting trapped in a short-covering rally.

Technically, despite holding the bottom at 1037.00 (which is horizontal support), the market pierced an uptrending Gann angle (which is diagonal support) at 1042.75. So while it looks as if buyers are defending last week’s low at 1037.00, the structure of the chart pattern suggests that sellers are trying to weaken the foundation. If selling begins to accelerate, then the next downside target is 1022.75.

Light volume continues to plague the market as many traders have taken an extended summer vacation ahead of the Labor Day week-end. At this time it’s difficult to say whether fresh buyers are actually stepping in to buy the dips or if enough large bids are being placed just to hold the S&P market up until either Friday’s employment report or until traders return next week.

On the upside, should an intraday support base be build, then look for a possible rally into a downtrending Gann angle at 1055.75. Let’s get there first before we start to worry about it.

German Employment Data Better than Guess

It seems we’ve hit that point in the economic cycle where traders celebrate the quality of the analyst guess. We saw it last week when U.S. GDP fell to 1.6% but stocks rallied initially because the pre-report guess was 1.3%. This morning the Euro is rallying because Germany’s federal labor office said the seasonally adjusted number of unemployed workers fell by 17,000 in August. Economists had forecast a decrease of 20,000 in the number of people without jobs.

I suppose you can build a case for calling this report a steady improvement in the labor market which suggests that the German economy is improving but at a slower pace.

Actually when a market rallies because the report was better than the pre-report estimate, it doesn’t necessarily always mean new buyers came in. Many times investors are merely adjusting their positions triggering a short-covering rally. To professional traders it’s not always about being right or wrong about the market as much as it is having the right size on in order to manage the risk.

On the better than expected news this morning the September Euro rallied, triggering a short-covering rally in front of the previous main bottom at 1.2587. Last night’s sell-off created a swing top at 1.2779, helping to form a minor range of 1.2587 to 1.2779. The main trend will turn to up on a trade through 1.2779. The downtrend will resume on a trade through 1.2587.

In the bigger picture, the main range is 1.1876 to 1.3334. This range has created a major retracement zone at 1.2605 to 1.2433. The charts indicate that a failure to hold the 50% level at 1.2605 should trigger a break to the .618 retracement price at 1.2433. An uptrending Gann angle at 1.2486 could slow down the rate of the descent should this market find selling pressure.

It’s a little premature to talk about the long-side of the Euro if you are a trend-trader until 1.2779 is taken out. If this occurs then the first upside target will be 1.2961 to 1.3049. Counter-trend traders may have stepped into the long-side this morning. The general rule for counter-trend traders is “find an exit first before entering”, and based on this morning’s activity, this exit may have been identified as 1.2587.