AM: Indifference to better than expected employment

By Jani Ziedins | Intraday Analysis

Mar 08
S&P500 daily at 1:23 EST

S&P500 daily at 1:23 EST

AM Update

Stocks are modestly green on a lower unemployment rate, but is the lack of a move good or bad for the rally?

MARKET BEHAVIOR

Stocks gaped at the open on stronger than expected employment, but sold off to break-even in the first hour of trade.  After briefly dipping into the red, stocks bounced back and are stuck somewhere between the open and early lows.

MARKET SENTIMENT

It is interesting to see the market’s tepid reaction to one of the strongest jobs gains we’ve seen since the recovery began.    We need to figure out why it didn’t surge higher and what this says about where we are headed.  This was the perfect recipe for a short squeeze and momentum chasing.  What happened?

Part of it is the diminished role employment played in recent months.  A year ago the market held its breath for each employment report, but now it is just another data point. Going from losing jobs to gaining jobs was a major turning point, but going from 150k to 200k gains is less meaningful.

The more concerning explanation is if we are running out of buyers and no matter how good the news, the market is stuck without new money to keep pushing prices higher.  Are we finally out of buyers or are reluctant holdouts are just being stubbornly difficult?

TRADING OPPORTUNITIES

Expected Outcome:
I’ll be honest, I expected more out of the market this morning.  When it doesn’t behave the way I expect, it makes me nervous because it means I am missing something.  We are obviously getting close to a top, but I thought we still had a bit further to go given the persistent and widespread cynicism.  The lack of a surge today means could be closer to the top than I expected.  While we are still trading in the green and I don’t want to pull the plug prematurely, I am less confident and moved my stop up to 1530.  Holding 1540 this week is supportive of the market regardless of the headlines and reluctant money managers only have a few weeks left to buy this bull before quarter’s end.

Of course there is no reason to keep holding for the last few dollars of upside.  The market rallied nearly 50 points since breaking back above 1500 last week and taking worthwhile profits is never a bad idea.  We are in this to make money and the only way to do that is selling winners.

Alternate Outcome:
The risk of an imminent top jumped this morning when the market failed to find a large pool of buyers after a decent employment number.  If the lack of buying is because no buyers are left, we will head lower no matter how good the news.  The market is still holding gains and is not breaking down, but it is enough to make me raise my stop-loss to 1530.  A closer stop-loss increases the chances of getting shaken out in a normal market fluctuations, but until I see stronger performance out of the market, I’ll keep it on a short leash.

INDIVIDUAL STOCKS

AAPL is stuck between $420 and $435.  Bottom-pickers come in below $420, but follow-on buying fails to materialize above $435.  As tempting as it is to call a bottom, there is no material supply and demand reason or change in sentiment to justify a reversal here.  In fact this pause is encouraging the hopeful and sucking in dip-buyers, making a continued selloff even more likely.  This stock needs big money to back it up and right now institutions are selling, not buying.

Stay safe

Follow

About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.

fleischut March 8, 2013

I took profits on all SPY longs this morning into the surge above 1550, and shorted it. Didn’t take profits soon enough on the short! But not unhappy about selling the long, which has been a solid performer this year and is due for a rest.

I think you’re right that this thing goes higher, the algos want 1575 and what the algos want the algos get. But I don’t really see the r/r, personally, in risking much of anything for 25 points. Will probably throw a few calls on the fire if we retest 1535 or so. Otherwise, just going to sit back, enjoy the fireworks, and let this market decide whether it’s a secular bull or not.

    Jani Ziedins March 8, 2013

    Great plan and execution. Most traders fail to appreciate all the advantages of selling into strength.

mark March 8, 2013

I think the muted reaction may be good..for the rally to continue’. People still reluctant to chase the market as they still expect a dip to buy. Not giving much back after initial drop may be cause for them to think twice and I think you still need to see a panic move up for at least a day or two to sell this

    Jani Ziedins March 8, 2013

    I absolutely agree with you and is why I kept holding even though I raised my stop. I feel too much cynicism to honestly believe this is the top. Today’s dip and bounce made 1530 a pretty safe trailing-stop level if the continuation is real. If we couldn’t hold 1530, that would be a good time to take a break and reevaluate. But so far things are moving our way in the last hour of trade.

spearchew March 8, 2013

The notion of muted market reaction to positive news reminded me of something I recently created, and I’d like to share it here.

It was intended to be my own private giant wall-poster, but I thus far didn’t get round to having it printed off in large format. I guess in due course I will be struck with better ideas of how to give a very general representation of the S&P 500.

Sadly not gotten round to updating for February.

Basically, I have annotated the S&P long-term chart with important central banker comments (alongside my own subjective “DEFCON” rating as to how aggressive the rhetoric sounds).
Additionally, I have made note of a handful of what I deemed obviously important economic data releases.

The green bulls/red bears a long the bottom depend on how the market reacted on the given day, to a particular data release, aggregated for the full month. Positive unemployment report + muted market reaction, would therefore prompt a red bear icon.

Really dunno where I was going with this…

http://imageupload.co.uk/files/4lukvh8pzyhu5s0pnh85.png

    spearchew March 8, 2013

    followed by some COT summary data at the bottom, the interpretation of which I am still unsure of…

    followed even later by quotes I particularly like, from Jessie Livermore.

    Jani Ziedins March 8, 2013

    Impressive chart, you certainly have a lot of work in it and I especially enjoy the JL quotes you included, some of them are highly relevant to today’s trade.

swansea March 8, 2013

Thank you for an excellent blog. Informative, generous, a fair degree of clarity and no BS. CM has become my first and only port of call for a quick lowdown on the market.
Re today. I’m watching the market claw its way back into positive territory after the initial pop n flop. Sometimes I’ve noticed that there’s a sort of delayed reaction to good/bad news.
Lets see where we stand after a couple more trading days…remember JL’s friend in the bucket shop, “…but its still a bull market”!

    Jani Ziedins March 8, 2013

    I’m glad you enjoy it and find value. Today’s rebound is productive and shows holders are not selling, keeping supply tight enough to keep pushing us higher no matter what bears think. Like you said, this is a bull market and the smart trade is sticking with the trend.

TJ Parker March 8, 2013

“Reluctant money managers”? Haven’t you read? Money managers are already all-in and leveraged, and holding puts. Watch the volume.

    Jani Ziedins March 8, 2013

    WSJ recently reported 75% of money managers are trailing the indexes and only 7% are beating the indexes by 2.5% or more. If most managers were leveraged to this nearly straight up market, most would be ahead, not behind. Professional money is still underweight because they don’t believe in this rally and are waiting for the pullback.

TJ Parker March 8, 2013

Oh, re why no short squeeze: short interest is at its lowest since 2009.

    Jani Ziedins March 8, 2013

    I agree with you on this point, but be careful when using reported short-interest because that data is up to a month old when published. Last week’s volatility is what flushed out the shorts and that won’t show up in the data for a couple more weeks. Put/Call ratio does a better job giving realtime information, but it can be deceiving because it doesn’t differentiate between buying, selling, hedged, and unhedged positions.

spearchew March 18, 2013

http://s18.postimage.org/9z7fia8jt/ES_WALL_POSTER.jpg

Ah what the hell

    Jani Ziedins March 18, 2013

    That chart helps keep everything in perspective.

Comments are closed