Back on Tuesday in our S&P Outlook we unequivocally said "Buy-Oversold" with one reason being that the economy could not fall off the cliff that equities were pricing fast enough to satisfy the large short base built. This morning's payroll report did surprise to the upside but for the bulls - don't get too excited. Indeed there a host of components that suggest the headline misrepresents an upturn in economic activity. Average hourly earnings did rebound but weekly earnings at 2.1% y/y badly lags filling up your gas tank at CPI headline 3.8% y/y. Looking at headline payrolls from July to September ex-Verizon wee see 127k, 102k, and now 58k. The unemployment pipeline is worrisome as unemployment at 5 weeks and under has increased for two consecutive months and the U-6 underemployment rate surged to 16.5%, the highest this year (led by a spike in those working part time for economic reasons). As intimated, the markets lead employment conditions and the economy and while many see the best probability of a muddle through economy our bet is Europe enters recession first, followed by the U.S., producing a good chance of a hard landing in China and some other developing economies that rely on export growth to the developed economies. We recommend that longs take profits into strength today though we would hold short selling powder for earnings that likely will be better than expected like the current payroll prints in lagged fashion and while market participants yete again get duped by hopes for resolution in Europe. Cash S&Ps closed barely above the mid Bollinger band (1163) and will need a few closes above to continue the trend but too many shorts have covered (note volume declining in the rally). Short location above comes best from trend lines off the highs at 1180, and the mid to high 1190s with the 50 day exponential moving average at 1188 having capped every rally beginning on August 31. A close below 1142, the 8 day mover trading pivot would be bull-fatal and suggest that too many shorts covered.