Let's hope the "Green Shoots" of a recovery do not get mowed down!
Fundamentals
Spring is in the air, and traders and analysts are finding so called "green shoots", or signs of a recovery from the economic malaise we have been in. Just this week, we have seen a positive stock market reaction to the "leaked" results of the government's "stress tests" on 19 major U.S. banks, even though many will need to raise further equity. Wednesday's APD employment report came in well below expectations, with "only "a decline of 491,000 private sector jobs in April. This has set the stage for many analysts to lower their estimates for today's Non-farm payrolls report. Before the ADP announcement, traders were looking for April's NFP to come in around a 610,000 loss last month. Now some more optimistic pundits are looking for a number closer to 450,000 to 500,000. If true, this would be well below the 663,000 jobs lost in March. However, the unemployment rate is still expected to climb to near 9%. Even if the unemployment rate rises, some traders will look beyond these figures, as employment is a lagging indicator, and an improvement in economic activity usually takes place months before payrolls start to show signs of improvement. Weekly jobless claims fell once again, down 34,000 to 601,000, which was the 4th drop in 5 weeks, although continuing claims rose to a record high of 6.3 million, which shows that finding a new job remains difficult. Even the stock market has been sprouting new growt, with most of the major indices up for the year. Volume has been rather light on this rally, however, which may be a sign that much of the recent gains has been due to short-covering and not as much fresh buying. This could signal that the up move is nothing more than a bear market rally and a potential "trap" for those coming to the bull's party late.
Trading Ideas
Those traders who believe the recent-run-up in equity prices is due for a correction may choose to investigate bearish futures option strategies in the stock index futures markets. The NASDAQ 100 futures have run up nearly 400 points since the middle of March with hardly any correction. One possible bearish option strategy that could be employed is to buy the June E-mini NASDAQ 100 1390 puts and sell the June 1290 puts. With the futures trading at 1391.50 as of this writing, the spread could be bought for 35.00, or $700. The premium paid is the maximum loss on the trade, with the maximum profit $2000, minus the premium paid.
Technicals
Looking at the daily chart for June E-mini NASDAQ 100, we notice that prices continue to hold just above the uptrend line formed from the March 9th contract lows. Prices are above both the 20 and 100-day moving averages, all of which favors the bull camp. However, most ominous for the bulls is the sharp drop in the 14-day RSI yesterday, after the June contract made recent highs of 1437.75. The market then reversed, which may be a sign of some profit-taking by weak bulls before the NFP report or the start of a correction in the recent up-move. Resistance is now found at yesterday's highs of 1437.75, with support at the 20-day moving average currently at 1360.00.
Mike Zarembski, Senior Commodity Analyst
