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Jobs Report Was Better Than Feared
www.oneoption.com
This morning the BLS reported that 64K new jobs were added in November.
PRE-OPEN MARKET COMMENTS TUESDAY – The BLS has not been able to publish the jobs report because of the government shutdown. Now they have gone back and calculated the November number. It wasn’t strong, but 64K new jobs is better than a negative number. Hourly wages increased by .1% and that is not inflationary. The unemployment rate rose to 4.6% and that was higher than expected.
An abbreviated number for October showed 105K job losses.
When the economy is growing at a strong pace we would expect to see job growth of 200K per month. We haven’t seen that in a long time. Even when the BLS was publishing job statistics, it was grossly over-reporting employment. I don’t have a lot of faith in the number and the market barely budged on the news.
ADP reported weekly job growth in the private sector of 16.3K.
Core retail sales grew .4% month over month. The retail sector has been relatively strong this holiday season.
TLT is still below major support and longer-term yields are rising. This is going to put pressure on big ticket items like cars, appliances and mortgages. Japan and China have been selling US Treasuries and rates will stay elevated. We’re not alone, other countries that have to finance huge deficits have rising yields (lower demand for debt). This is also true for states and municipalities.
The Bank of Japan (BOJ) is expected to raise interest rates 25 basis points this Friday. That is widely expected and it could cause some disruption as the Yen-carry trade unwinds. The BOJ is also expected to sell its $500B worth of equities (mainly Japanese) starting Friday. At the $5B pace, it would take 100 years to unwind. The interest rate hike is more of an issue than the equity selling. It is just another brick in the wall of worry the market has to climb.
Crypto stocks and semiconductor stocks were hit hard yesterday and QQQ is below the 50-day MA. These are technical warning signs. The index made a lower high double top and this is concerning. Without the tech sector, the SPY will struggle to advance.
The momentum into year end has stalled. The dips are more frequent and they are deeper. Year-end strength feels like it is the only thing keeping the market afloat. I am market neutral and I feel like the SPY could test the 50-day MA this week.
I have some naked puts on right now and I am not adding to positions. If the market drops today I will short to hedge those positions. Most of my positions expire this Friday and I do not have any bullish put spreads on. Triple witching is Friday and we should see a trend day this week. If the momentum builds in one direction, institutions will lean into it and unwind positions. That will exaggerate the move.
I am seeing better shorting opportunities than buying opportunities. The price action has been more steady and sustained than it has been on the long side. The volume during the declines the last two days has been heavy and that is another warning sign.
Global markets were down overnight and there is a headwind. There’s no need to jump into action early. If we take out the low from Monday in the first hour of trading, I would favor the short side.
Support is the low from yesterday and the 50-day MA. Resistance is the high from Monday.
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