E-minis swing with unemployment news

Good day! The Dow Jones Industrial Average ($DJI) ended the week last week at yet another 2 1/2 year high. It posted a weekly gain of 2.27%, while the S&P 500 ($SPX) and Nasdaq Composite ($COMPX) also managed decent gains for the week despite choppier trade. The S&P 500 rose 2.71%, while the Nasdaq climbed 3.07%. All three of the major indices are up more than 4% year-to-date and the Nasdaq is only off 1.23% from its high in October 2007.

Most of last week's gains were due to a strong rally on Monday morning, but the market managed to hold its own and congest at highs throughout the week with some mild upside action once again on Thursday and Friday.

Dow Jones Industrial Average (Figure 1)

The main focus on Friday was the latest employment data. This kept the indices active throughout the session, making it a very favorable day for intraday traders. Trend action and price moves were very regular throughout the session with solid waves of buying and selling on the 5 minute charts.

The index futures traded within a congestion range throughout afterhours and premarket trade ahead of Friday's jobs data. The bias within the congestion was bullish and the futures attempted a breakout higher ahead of the news. This is always a risky prospect unless you plan on covering the position prior to the news since even a correct bias can get whipped out quickly in post-release volatility.

The bulls heading into Friday morning were initially treated to a shock by a strongly negative reaction to the premarket news. One of the surprises that would seem beneficial on the surface was the change in the unemployment rate. According to the Labor Department, the headline unemployment rate dropped from 9.4% in December to 9.0% in January. Analysts' had been expecting unemployment to tick higher to 9.5% for the month. Those focusing on the Treasuries apparently did view this as positive news for the job market. Treasury prices fell, while yields rose. Additionally, average hourly earnings unexpectedly rose 0.4%. This is only part of the picture, however, and doesn't really offer better news for job-seekers. Let's look a bit deeper...

S&P 500 (Figure 2)

On the cautious side is the belief that one of the reasons that the rate was lower was simply because many of those who are unemployed simply gave up trying to find new positions. The bad weather that plagued a large portion of the country throughout January would have also contributed to this.

In related news, the rate of job growth slowed last month. The government reported that only 36,000 new jobs were created in January, which is the fewest in four months.

Despite the report the report of job growth, the actual number of unemployed workers (not seasonally adjusted) was still quite dismal. In fact, it rose from 14.83 million to 14.94 million, while the average number of weeks that a worker is unemployed has hit an all-time high of 36.9 weeks. "Real unemployment", which includes those who at least temporarily gave up searching for a new job or were pushed into part-time labor, now stands at 16.1%.

Nasdaq Composite (Figure 3)

The index futures sold off rapidly following the jobs data. The overall momentum, however, was not as strong as the initial push lower because two more waves of downside followed. Between each of the selloffs was a decent retracement so that the overall angle of the downtrend was modest. The third low took place at 11:00 a.m. ET, which was evenly spaced after the first two. This exhausted the downtrend and left the index futures at support heading into mid-day.

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