Friday, May 2, 2014

Equities Look Tired

With this huge NFP number, way above consensus and almost 300K, you would have expected the S&P to shoot higher and stay higher.  We are up all of 2 points on a monster jobs number.  The Street was expecting a strong nonfarms payroll number, so most were positioned for another gap up.  I don't think too many fund managers were waiting for the NFP to come out to start buying.  They were front running this thing from Tuesday.

The market looks exhausted here.  We probably won't go down much right away, but we are probably going to stall out and trade sideways.  I see very little edge here.  Instead, I see Treasuries acting very strong.  With this blowout jobs number, I see a good opportunity to get long bonds at decent levels.  Once again, the inflows should start to go heavily towards bonds for the next several months.  We are heading into a seasonally strong period for bonds.  On the dip today, I got long bonds, looking to hold for a longer term trade.

P.S. - While I was writing S&P just dropped 4 points, so a gap down on a 288K nonfarm payrolls, 73K more than consensus.  This is the first time I have ever seen anything like this.  A gap down on a blockbuster jobs number.  This is making me more bearish intermediate term.

10 comments:

Anonymous said...

More important is the close on NFP days. There is always yield curve/stock arbitrage in the first hour.

Market Owl said...

NFP days usually have traders leaning in one direction. If they are leaning in the direction against the recent trend, then you have an opportunity for an explosive move in one direction. Like what you saw with the extreme dip buying and short squeeze in bonds after NFP.

Anonymous said...

I would like to long bond..but what kind of stock or etf should I use to long bond? or mini future? thanks in advance.

Market Owl said...

TLT is the 20+ yr Treasury ETF. If you want leverage, there is the ZB Treasury Bond futures. It is a 15+ yr Treasury futures contract. They are both very liquid.

Anonymous said...

Thank you!

Anonymous said...

Hi MO, any thoughts on Fed's TOMO? Thx.

Market Owl said...

I haven't been paying attention to any Fed TOMOs. I know they do daily reverse repos but that's nothing significant.

Anonymous said...

Can u explain what reverse repo means? Definition tells that it withdraws liquidity from market. But why news headline always says PBOC injects liquidity via reverse repo?

Market Owl said...

Reverse repo and repo is the same transaction, just different viewpoints. It can be confusing because when they say PBOC injects liquidity via reverse repos, it means the banks are doing reverse repos by putting up collateral to receive cash liquidity from the PBOC.

In that caee PBOC is doing a repo, and the banks are doing a reverse repo.

Anonymous said...

Thx