Jobs Data May Cloud Recovery
Fundamentals
Stocks suffered heavy losses yesterday, after the initial claims showed an unexpected rise, signaling that the employment outlook for the economy may not be as strong as had previously been hoped. This news comes on the heels of a disappointing ADP employment report and news that the Labor Department is expected to make large downward revisions to previous payroll data, indicating that losses of US jobs may have been understated to the tune of 800,000. Traders may be bracing for the worst, given the poor showing in jobs data over the past two sessions, so bad news may actually lift the market if it's not as bad as traders' expectations. The consensus estimate is a 15,000 jobs inc, but there are estimates by several analysts that suggest the figure may show a loss of 40,000-50,000 jobs. Other economic indicators have had a positive tilt, but the labor outlook may cloud an economic recovery going forward.
Trading Ideas
It looks as though the sustained rally may be running out of steam due to the unclear job outlook. Technically, it looks as though the S&P may be on the verge of breaking down. However, the chart has fooled traders several times during the rally, suggesting caution may be the better part of valor. For this reason, some traders may possibly wish to enter into a bear put spread with limited loss potentional - such as perhaps buying the March 1050 puts and selling the March 1030 puts for a debit of 7.50, or $375. The trade risks the initial investment for a potential profit of $625.
Technicals
Turning to the chart, the March E-mini S&P closed below its 100-day moving average, which may be seen as a significant technical setback. The contract also closed below the relative high close of 1068.00 in September, which was a support level for the S&P futures. The next significant support level comes in around the 1030 level. If this support level is violated, the market could very well test and push through the 1000 level on the downside. It appears that the 20-day moving average is on the verge of closing below the 50-day average, which could be seen as negative over the intermediate-term. The momentum indicator has dropped sharply, outpacing the RSI, which suggests a negative near-term bias.
Rob Kurzatkowski, Senior Commodity Analyst
