Some Holiday Cheer on the Employment Picture in the U.S.
Monday, December 19, 2011
With the exception of a downward "spike" in August, the E-mini NASDAQ 100 futures have remained above 2000.00 throughout 2011. Some traders who are optimistic that the NASDAQ 100 futures will remain above 2000.00 to start 2012 may perhaps wish to explore selling puts in E-mini NASDAQ 1000 options with strike prices below 2000.00. For example, with the March futures trading at 2236.00 as of this writing, the January 1970 puts could be sold for 10.00, or $200 per option, not including commissions. The premium received would be the maximum potential profit on the trade, which would be realized at expiation in mid-January should the March futures be trading above 1970.00. Given the risks involved in selling naked options, traders should have an exit strategy in place should the position move against them. One such strategy would be to buy back the option prior to expiration should the option premium trade at 3 times the premium received for selling the option initially.
Fundamentals
With traders' mindsets focused on events across the Atlantic, equity futures may be missing some good news here in the U.S., as recent economic data suggests some positive momentum for the economy going into 2012. On Thursday of last week, the market received a slew of positive economic reports, starting with another sharp decline in jobless claims which fell by 19,000 last week to a seasonally adjusted 366,000. This was the lowest level that jobless claims have fallen since the spring of 2008! The 4-week moving average of claims remained below 400,000 for the 5th consecutive week, coming in at 387,750. The improvement in the employment sector was echoed by the New York Fed as the December economic index rose to 9.53, vs. 0.61 in November. The Philadelphia Fed general economic index rose to 10.3 in December. This was up from 3.6 in November, and sharply higher than the -30.7 reading seen back in August. Inflation remains tame, at least on the wholesale level, as producer prices rose a modest 0.3% in November. The so-called core index, which excludes the volatile food and energy prices, rose by only 0.1% last month. If there was a down note, it was report that U.S. industrial production fell by 0.2% in November, and that capacity utilization fell by 0.2% to 77.8 last month. The declines in industrial production were mostly blamed on the slowing of the European economy, which was expected to slow demand for goods in the EU. Equity markets have been quite volatile during the past several months, as traders try to determine if the European debt crisis will spread beyond the EU. Also, the lack of any consensus by EU leaders regarding how to tackle the looming crisis has led to bouts of euphoria and depression by traders, as contradicting reports of progress on dealing with the debt situation reach traders' desks. With the market so focused on the Eurozone, some traders may be missing signs of economic improvement in the U.S., and the domestic equity markets might be unfairly punished until a resolution in Europe takes place.
Technical Notes
Looking at the daily continuation chart for the E-mini NASDAQ 100 futures, we notice that much of 2011 was mired in volatile, but rather sideways trading activity, with prices contained within a 200-point range for most of the year. Since the "spike" lows were made back in August, prices have moved into a consolidation pattern, with a series of higher lows and lower highs on reduced trading volume. The 20 and 200-day moving averages (MA) are converging, with a slight bias to the downside in the 20-day MA. This negative bias is supported by looking at momentum as measured by the 14-day RSI, which is currently neutral to weak, with a current reading of 42.27. Near-term support is seen at the November 25th low of 2135.75, with resistance found near the 2345.00 area.
Mike Zarembski, Senior Commodity Analyst
