MorningWord 6/7/13: The NonFarm Payrolls number is out and at first blush it seems better than expected with a mild revision lower last month, but basically a non-event. As I write, the S&P futures are almost 2% higher than yesterday afternoon’s lows, which is significant in my mind as most traders/investors/pundits spent the better part of the week convinced that the May employment data would have some meaningful impact on the Fed’s course of bond buying. Whether you want to use the term “Taper” or not, the bond market has already started to anticipate some sort of easing of quantitative easing with the yield of the 10 year solidly above 2% since the SPX top on May 22nd.
We are not economists, or macro specialists, so we are not going to try to parse out what this all means but it what is fairly clear from the “Fed Speak” of the last few weeks is that the Fed doesn’t want their exit strategy to be clear. So to me there is no surprise in the last few weeks we have seen the SPX top out, bond yields bottom out, extreme volatility in the Nikkei and continued movement in currencies. Markets hate uncertainty and in a week that saw weak manufacturing data in the U.S. and most emerging markets we may be in for a new volatility regime as central bankers and investors alike try to rationalize what could be the fourth consecutive summer of seasonally weak economic data (read CC’s piece on this from April 2012 here).
From a trading standpoint, we have been of the mindset that a test of 1600 in the SPX was in the cards, which happens to correspond with the 50 day moving average. That was essentially the low from yesterday. On Fast Money on Wednesday, in response to a question about the depth of the potential sell off from the highs I noted that I thought there was a good chance we bounce off of 1600, possibly test 1650 again and then fail with a potential move back to 1550, which is essentially the 200 day moving average and would also mark what would be a near 5% re-tracement from the highs.
Who knows if we get back to 1650, but today’s data should do little to cause the profit-takers of the last week and half to get back in. On the trading front, we took some profits in the last couple days on some shorts (IBM, FDX & VIX), as we feared a bounce, but the idea was to trade that range we liked and at 1650 re-short the bounce.