Finally Some Good News on the Jobs Front!
Fundamentals
It appears that government statisticians woke up on the right side of the bed on Friday, as two major economic reports showed better than expected data on the U.S. economy. Starting the day off right, the Labor Department announced that November U.S. Non-Farm Payrolls fell by "only" 11,000, much better than the 125,000 loss most analysts were expecting. In addition, October payrolls were revised to a loss of 111,000 jobs vs. the 190,000 originally reported last month. The unemployment rate also declined, falling by 0.2% to 10%, which was a surprise for most traders. Average hours worked increased by 0.2 hours to stand at 33.2 hours. The service and health care sectors were among the biggest gainers, showing increases of 58,000 and 21,000 respectively. However, the manufacturing sector continued to shed jobs, with a loss of 41,000 reported for November. If the NFP report was not enough good news, the Commerce Department reported that U.S. factory orders increased by 0.6% in October, well above the unchanged level traders were expecting. Markets that should benefit from an improvement in the U.S. economic picture were among the biggest gainers after the reports were released, with Stock Index, Crude Oil, and the Dollar Index futures among those displaying "green" on traders quote screens. Gold futures, which have been on a historic bull run lately, traded sharply lower, falling below $1200.00 in the most active February contract, with the surge in the U.S. Dollar largely to blame for Gold's sharp decline. Though one month of sharply improved employment data does not a trend make, it certainly does paint a much brighter picture for the job market as 2010 approaches.
Trading Ideas
Friday's surprising employment report caused traders to begin to liquidate their positions in several strong trending markets, such as long Gold and short the U.S Dollar Index. Although it is still too early to call a major reversal in either of these trends, some aggressive traders may wish to consider trading strategies that would take advantage of short-term contra-trend price movements. An example using the Gold market would be to sell 1NYSE-LIFFE February mini-Gold futures and buy 1 COMEX January 1170 call. With the February Gold futures trading at 1170.90 as of this writing, the January 1170 calls were trading at 44.20 or $4420 per contract, not including commissions. The hope here is that any gains on the short mini-futures would help to offset some of the premium losses on the long option position, should long liquidation selling move prices lower in the short-term. However, should the uptrend re-assert itself, the delta on the long standard size Gold option contract should increase, allowing traders to get longer as prices move higher.
Technicals
Looking at the daily chart for February Gold, we notice the uptrend line drawn from the near-term lows of 1028.00 made in late October is now in jeopardy, as well as the widely watched 20-day moving average. Just below these two chart points could lurk long liquidation sell stops, although the so called "Thanksgiving Day commodity massacre" may have already taken many of these stop orders out. This leaves the recent lows of 1135.80 as a critical short-term support point. The 14-day RSI is showing a bearish divergence, as it failed to make a new high reading on Thursday when new all-time highs were made. Thursday's high of 1227.50 should now act as key resistance, and should February Gold manage to rebound to take-out this key resistance point, fresh momentum buying could signal a test of the 1300.00 area.
Mike Zarembski, Senior Commodity Analyst
