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More than expected jobs added in October, but we are still in the hole

The government reported an increase of 171,000 jobs in the month of October vs. expectations for 125,000. In addition, last month’s reading of 114,000 was revised higher to 128,000. This was good news, but Rick Santelli of CNBC pointed out that we are still in the hole when measuring from February of 2009 by 61,000 jobs. Accordingly, the celebration was short-lived.

On another note, political polls are pointing toward a tight race but there are some things you should know about the outcome, and its impact on the markets. The stock market typically views a Republican victory as being favorable for business; accordingly, in the short run the market has a tendency to react favorably to such a victory and less favorably to a Democratic victory. Additionally, regardless of the winner Novembers in election years have historically been a great time to be bullish.

Naturally, there is a long time view as well. The “Stock Trader’s Almanac” sums it up well; “Wars, recessions, and bear markets tend to start or occur in the first half of the term; prosperous times and bull markets, in the latter half.”

With all of this in mind we will be approaching the next two months with an overall bullish tilt, but will also be prepared to look the other way come the New Year.

The knee-jerk reaction faded

Traders sold into the jobs numbers but quickly changed their minds. By the close of pit trade, Treasuries were mixed to slightly negative across the board but seemingly in position to post further gains in the short run.

We aren’t fundamentally bullish in Treasuries, but the market hasn’t fulfilled its technical objectives (at least it hasn’t based on our models) and that leaves us unwilling to be bearish.

We could see some interesting and volatile moves as the Presidential election comes to head, and we feel there could be some good opportunities in the near future. However, directional position trades in the ZB at current prices don’t seem to offer optimal odds.

Treasury Market Ideas

Consensus: We are going into the weekend (and Presidential election) neutral in the 30-year bond and the 10-year note, but not so secretly hoping for a sharp rally to be a bear. Ideally, 151 will FINALLY come into play!

Support: 147’25 (minor) and 146’03(30-year Bond), 132’10 and 131’20 (10-year note)

Resistance: 149’30 and 151’07(30-year Bond), 133’20 and 134’05 (10-year note)

Position Trading Recommendations

*There is unlimited risk in option selling

October 19: Buy the December 5-year note futures contract and buy a 123.75 put for insurance. The result is over 30 days in the market with theoretically unlimited profit and a total risk of about $400 per contract.

Yesterday we said we would like to see a dip, and here it is. Can we get 1384ish?

As a reminder, November begins what the Stock Trader’s Almanac coins as the “Best Six Months”. We have a feeling that the sluggish October trade will soon be recognized as a buying opportunity. However, our chart-work calls for a retest of the low (1392ish) or even a moderately new low (1384ish). Bulls should be looking at these levels for possible entry areas.

Keep in mind, both Monday and Tuesday are statistically bullish days. Even if Obama walks away with a victory, the markets could very well see it as a positive…simply because some of the uncertainty surrounding the event is eliminated. On the contrary, a Romney victory could trigger a nice rally. These comments are based on stats only, and not political opinions…please refrain from sending us hate emails :)

Stock Index Futures Market Ideas

Consensus: A year-end rally could be brewing, but we’d like to see an employment report dip first.

Support: 1403, 1392 and 1384

Resistance: 1429, 1445 and 1462

Position Trading Ideas

Flat

Day Trading Ideas

These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled

Buy Levels: Let’s see what Monday looks like

Sell Levels: Let’s see what Monday looks like

In other markets….

October 23: Sell the January crude oil 100/72 strangles for about $1.15 in premium, or $1,150. Max profit occurs at expiration if the market is between $100.00 and $72.00. Risk in option selling is theoretically unlimited.

October 31: Buy back January crude oil 100/72 strangles for about 67 cents in premium to lock in a profit of about $480 per contract before transaction costs.

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)

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DeCarley Trading 
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Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

There is substantial risk of loss in trading futures and options.