Friday, June 3, 2016

NFP History

These nonfarm payrolls numbers are not to be taken lightly.  Sure, it will prevent the Fed from raising rates but they just reinforce the slowing economic data that has been coming in.  The economy is weaker than 2015 which was weaker than 2014.  The earnings numbers back this up, as well as the global PMIs and equity indices (all except the US equities).  That is why I have been so surprised at the resilience in this market, but the strongest indices is always the last to fall, and the strongest is the S&P 500.

These kind of weak nonfarm payrolls numbers coming after a big equity rally often kickoff a sustained selloff, like July 2011, April 2012, etc.  In fact, the most similar period that I can find to this is the summer of 2011 and spring of 2012.

I don't think this resilience in the S&P 500 will last beyond June, as the only thing that is holding up this house of cards is buybacks and cash M&A.  Now that you get a stock buyback blackout period coming up in the last week of June lasting till late July, you have a black hole of buying power.  Retail is definitely not going in.  Institutions have heavily covered shorts and have gotten back to close to their base equity allocations over the past 3 months.  This is setting up for a potential waterfall decline like August 2015 and January 2016.

I have started a short in the S&P and will hold it for a move down to 2040-2060 area.  I see very good risk reward for the short side from now till middle of July.  Time to short em.


shzhning said...

for the short you just put on, do you have a stop? Or for all your swing trades, do you use stops at all?

Market Owl said...

Stop is at 2115. Target is 2040.