Can The Markets Handle Hiring Slows?
On Friday the U.S. labor department released the monthly jobs numbers and most felt that they were a mixed bag. March has seen the slowest equity returns of any March in almost ten years. That could be because the market has gotten extremely overbought since it bottomed on Christmas Eve 2018. On the other hand, maybe, we are in a holding pattern.
The unemployment rate stayed near ten-year lows at 3.8%. But on the other hand, the street was looking for more hires than the 20,000 jobs that were added in February. However, all of the news wasn’t negative. On the good side, the gap between hourly wages and inflation continues to rise in favor of the worker. In addition, more than 83% of those looking for jobs can readily get them. That percentage of those participating in the work force is back up to near all-time highs.
Hospitality industry employment led the way in average number of jobs that were created but the construction industry stumbled and showed a sharp reversal from a year ago. Another reason for the weak numbers is because hiring in December and January were near records for that time of year.
Where do we go from here? As always that is just a guess, but my gut and the ten-year note tells me that the equities are not going to go into a tailspin over the numbers. The ten-year note had a rally and reached highs that haven’t been seen since the pre-Christmas sell off. Normally that means that they are not fearful that the fed is going to step into the market and nudge rates higher. As my mom used to say, “no one knows for sure” but my guess is that the fed will not tighten as the rest of March will be a waiting game!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
What is Pin Risk and how do I deal with it?
Answer: When weekly options expire each Friday, the profit or loss in the spread is calculated by subtracting the credit or debit from the strikes used in the trade. The resulting number is the profit or loss. Even using $1 strikes there is a 99% chance that price will not settle exactly on a strike. If you are using $5 wide strikes there is a 1 in 500 chance it will settle on a strike, but from time to time it will happen. If you have either a debit or credit spread in place it could settle on either the short end or the long end of the spread. If it settles on the short end, most likely you will be assigned 50% of the shares. Iif it settles on the long end, you should exercise 50% of the shares.
Why 50% of the shares? Because there is the “other side of the trade”. Remember when you are short an option someone must be long the option. So, they have same problem that you do, and most logical solution is for them to exercise 50% of their options. Does it always work perfectly? No, nothing works all of the time, but it gives you the best mathematical solution to end up without having stock in your account on Monday. If you do end up with stock on Monday you will either take delivery or buy or sell the shares to get flat the market. In my thirty-five plus years of trading options I have found that this trade, although scary, has ended up in a scratch over the long run.
The Wise Guy Report: The View From The Floor
Each week I talk about what I think the Wise Guys (floor traders) are up to with the Big Three commodity contracts: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). I also track the Market Edge (www.marketedge.com) ‘Market Posture’ which has a twenty-six year record of forecasting the intermediate-term direction of the stock market as measure by the DJIA with around 70% accuracy.
The Ten-year note has had a nice rally form the lows in December as fear of the fed spiking interest rates was rampant. It rallied again on the unemployment numbers this week. I got long this market on a pull back last week and will continue to stay long until we take out support levels or we reach the panic high of December in which case I will take profit and look for a trade at a double top.
After getting hammered last quarter when the market collapsed, liquid gold has seen a sharp turnaround. The problem is when a market loosses more than 50% of its value, it takes a 100% rally to get back to the tops. Since its nadir on Christmas Eve, crude has rallied from a low of about $42 to its current level around $57. No matter how you look at it, that is a heck of a rally. Where we go from here is anyone’s guess, but it appears that we are at the start of a new bull run and maybe we can get up to the $76 level again. You can enter this market on the long side anytime you please but I am looking for a pull back to the $55 range to get involved. I think with the longs being the strong hands, I would be reluctant to try and stop this puppy from the short side.
Gold has had a nice rally and looks like it could be pulling back to support. I think that any international tensions or a spike in U.S. interest rates could cause this market to take off to the upside. I bought the last pull back and so far have been proven to be wrong. I will continue to hold this position until either it gets back to long term highs or near-term support is broken.
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The Market Edge – ‘Market Posture’ Based on the status of the Market Edge market timing models, the ‘Market Posture’, which has been Bullish since the week ending 1/04/2019 (DJIA 23433.16), remains Bullish at this time but is projected to change to Bearish as early as next week.
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