A Big Yawn from Index Futures on Jobs Report Release
Monday, January 9, 2012
There appear to be enough events looming, both economic and political, to keep the equity markets quiet for the time being. Key support and resistance levels on the E-mini S&P futures have moved to a narrow range, and any price movement beyond these borders has the potential to trigger a large price move. Some aggressive traders may perhaps wish to explore buying just-out-of-the-money strangles in anticipation of a large price move or a spike in volatility in the next several trading sessions. For example, with the March E-mini S&P 500 trading at 1274.00 as of this writing, the January 1285 calls and the January 1265 puts could be bought simultaneously for a net debit of 23.25, or $1,162.50, not including commissions. The total investment in the strangle would be the maximum potential risk on the trade. Given the short period of time to option expiration, some traders may wish to exit the trade prior to expiration should the strangle trade at either 50% or 150% of the premium originally paid.
Fundamentals
The highly anticipated December Non-farm Payrolls report drew a muted response by stock index futures traders, despite signs of an improving employment picture. The headline figures were positive, with the Labor Department reporting that December Non-farm payrolls rose by 200,000 last month, which is better than the 150,000 jobs gain that was the consensus estimate. Private sector employment rose by 212,000 jobs, but public sector jobs fell once again, this time by only 12,000. The monthly revisions were a mixed bag, with November payrolls revised lower by 20,000 jobs. However, this was mostly offset by a positive 12,000 jobs revision for the month of October. The unemployment rate, which is calculated by a separate of survey of households, continued its decline, falling by 0.1% to 8.5%, but well short of the surprising 0.4% decline In November. Though this was the 15th straight month of job increases, it is the pace of jobs creation that concerns many traders, as it is estimated that a minimum of 125,000 jobs need to be created each month just to keep up with the increasing US population -- not to mention making up for the nearly 9 million jobs that were lost beginning with the economic crisis in 2008. In addition, wage growth continues to lag the inflation rate, which may be keeping many US. workers from feeling confident about their economic situation. The equity markets have been rather subdued this past week, after spiking higher to start 2012, as traders are hesitant to take large positions ahead of the start of the earnings season and are also still wary of the economic situation in Europe. Given the uncertainty surrounding the outcome of these events, not to mention any effects on the global economy due to potentially rising energy prices if the sanctions against oil purchased from Iran take place, we can expect to see choppy trading activity in the stock indices, as traders react to the latest headlines regarding these global issues.
Technical Notes
Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice prices holding just above the symmetrical triangle chart pattern, after breaking out to the upside after the New Year's holiday. Prices are now above both the 20 and, more importantly, the 200-day moving averages, which is a bullish indicator. However, trading volume has been very light, even after the upside breakout, which may be a concern that the recent rally may prove to be a false breakout. The 14-RSI has been holding at a relatively strong reading of 61.15. The October 27th high of 1289.25 looks to be a key resistance point, with the 200-day moving average, currently near 1255.25, acting as support.
Mike Zarembski, Senior Commodity Analyst
