Stock Index Futures Not Impressed by NFP Report
Monday, October 10, 2011
Failure to sustain the "knee jerk" rally that occurred after the non-farm payroll figures were released may be signaling continued weakness in the E-mini S&P futures. Some traders with a bearish bias may perhaps wish to explore a bear call credit spread. For example, with the December E-mini's trading at 1155.25 as of this writing, the October 1250 calls could be bought and the October 1200 calls sold for a credit of 8.50, or $425 per spread, not including commissions. The premium received would be the maximum potential gain on the trade which would be realized at option expiration on the third Friday in October should the December futures be trading below 1200.00.
Fundamentals
Stock index trades must have woken up in the wrong side of the bed on Friday, as a better than expected Non-farm Payrolls report for September was met with little enthusiasm. The headline figure was certainty positive, with 103,000 jobs added in September, vs. the 60,000 jobs the consensus was expecting. The prior month's revision was also supportive, with the Labor Department revising August payrolls to a positive 57,000 from unchanged. The average work week rose by 0.1 hours to 34.3 hours. The unemployment rate remained unchanged at 9.1%, as more Americans attempted to re-enter the workforce, which offset the jobs created. However, "the devil was in the details" of the report, as the payroll gains were padded by the ending of the strike by telecom workers at Verizon in September, which accounted for a gain of 45,000 jobs. If we remove this event from the figure, the payrolls figure would have nearly met pre-report estimates. The rate of jobs growth is still well below the amount needed to actually put a dent in the unemployment rate, as economists estimate that we need to add jobs at an average monthly rate of at least 200,000 jobs to lower the rate by about 1%. Private payrolls grew by 137,000, though the key manufacturing payrolls fell by 13,000 jobs. Public sector employment continues to fall, with government payrolls shedding 34,000 jobs last month. If we look at the so-called "underemployment rate", which includes those who are working part-time but wish to work full time, as well as those who are not actively looking for work but would want to work full time, the rate has risen to 16.5%, which is the highest level this year. It appears that many traders will not become bullish on equities until we start to see some form of cooperation from Congress and the executive branch in implementing fiscal policies that will take away much of the uncertainty that is hampering employers from hiring or expanding their payrolls.
Technical Notes
Looking at the daily continuation chart for E-mini S&P 500 futures, we notice that prices have been trading within a consolidation phase, with a bias to the downside. Prices attempted to trade above the 20-day moving average on Friday, but the early recovery was not long-lasting. The 14-day RSI continues to hover in neutral territory, with a current reading of 48.20. Support for December E-mini's is seen at last week's lows of 1068.00, with resistance found at the recent highs of 1214.50.
Mike Zarembski, Senior Commodity Analyst
