Bulls go enthusiastically to work on an upside technical resolution following strong January nonfarm payrolls data. As of 11:05 ET the SP-500 (SPY) is up 1.20% near session highs and “most” all eyes now focused on a retest of 2011’s May highs.
The pace of job creation for the US economy swelled above forecasts during January according to the Bureau of Labor and Statistics. Nonfarm payrolls rose to 243,000 versus views of 150,000, while private nonfarm payrolls increased by 257,000 compared to estimates of 168,000.
Unemployment also unexpectedly dipped to 8.3% from 8.5% compared to views calling for a flat reading.
The service sector saw an increase of 162,000 jobs with strength from lower wage, retail and food and beverage industries. Yet, higher paying jobs in manufacturing also improved with payrolls growing by 50,000. Likewise, mining, healthcare and warehousing drew better-than-expected job creation.
Reaction to the data has been bullish with premarket futures surging forward 1% immediately following the report. The gains thus far look to break a long-standing bearish technical trend of eight consecutive months of down days on the heels of nonfarm payrolls data.
Friday’s strong response from investors not only has a neutralized trading range some two weeks in length to thank, but also ADP private payrolls data which earlier this week came in below forecasts and set the stage for a disappointment from the BLS.
Separately, an intraday release of ISM Service data has proved pleasing and supportive to bulls jockeying the market higher. For January, the index rose to 56.8 from 52.6 while easily topping forecasts of 53.1.
In those intertwined markets of influence, the Naz' 100 (QQQ) is keeping pace with the SP-500, but the tech-heavy index is displaying relative strength Friday as it continues to bust to fresh 11 year highs after breaking above its May 2011 levels two weeks ago.
The US Oil Fund (USO) is underperforming with shares of USO barely higher by just 0.40%. The relative weakness has the oil proxy testing its 200SMA for support for a second session.
Keeping a cap on the USO is the product’s pricing with WTI contracts and robust Canadian supplies. In turn, this is allowing for a continued widening spread relative to Brent crude futures which are reacting to Friday’s bullish economic data and fresh saber rattling from Iran warning of retaliation over an oil embargo tied to its nuclear program ambitions.
In those sometimes accurate heat-seeking option markets, the CBOE Volatility Index ($VIX) is showing investor sympathy for Friday’s broad-based move higher in the major markets as it trades lower by 6.50%. However, that same conviction is closing in on a short-term signal of too much enthusiasm or complacency near-term.
Intraday, session lows of 16.10% in the VIX has generated a differential of 13%relative to its 10SMA. Readings of 15% and greater are typically strong warnings of the mean-reverting instrument getting ahead of itself and in need of some neutralizing of market conditions—and in this case, Friday’s bull at large.
In passing and showing subtle signs of wear and tear and not confirming Friday’s move in equities, the EUR/USD is off 0.14% and struggling with a sixth day of consolidation after producing a counter-trend rally of intermediate lows. Gold (GLD) and silver (SLV) are off 1.25% and 1.75% respectively, though copper (JJC) is up 3.0%.
Finally and on the corporate confessional side, well-received outperformers on the session include Gilead (GILD), Silicon Motion (SIMO), Trimble (TRMB), Microchip (MCHP) and Digital River (DRIV); all of which, and incidentally, are helping drive the NASDAQ to fresh highs.
In the technical spotlight, erstwhile growth outfit Acme Packet (APKT) is up 5.25% and breaking above 50SMA resistance and a weekly downtrend stretching back since May of last year.
The bullish action comes in the face of its penny miss, narrowly weaker-than-forecast sales growth of 18.2% and issuance of below-views FY12 EPS guidance of $0.96 - $1.00 versus estimates of $1.27.
Traders are favoring Acme Packet’s calls by a two-to-one margin on heavy overall volume of 55,000 contracts and appear to be siding with Friday’s “buy-the-news” or “better-than-feared” reaction in shares of APKT.
A quick check of the option board also shows a wide range of strikes and contract months suggestive of a host of softer delta strategies such as verticals and calendars potentially being deployed. While Wile E. Coyote might not approve with that type of (Acme) package, thoughtful bulls don’t succumb to the same pitfalls and don’t tend to implode as easily either.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
