The SP500 for the 3rd time in the last 3 months sold off on NFP numbers. The last two, were both peak highs. March 7th the SP hit highs of 188750 before turning down to 182350. The FRB chair gave the markets a push on the 31st of March reassuring stimulus measures. This gave way for new highs going into the April 4th report at 189250, only to see these highs once again rejected after the NFP numbers were released that morning. This higher high and failure led the market to break March lows and fall down to 1803 in April to shake out the long side and lure in shorts. This has led into a short squeeze leading into today's job number as the market retested the failed April highs to give buy side another chance to push through. Third time was not the charm, as the NFP failed to breach old highs of 189250 and the cash open saw profit taking to hold the NFP high of 1886, setting up a LOWER high, as opposed to the last 2 NFP peaks.
This selling on the Jobs report over the last 3 month period comes as the market nears the old 6.5% unemployment target the FRB established in December of 2012. The SP closed 2012 at 1420, 30 year bonds at 147, gold at 1675, and the Yen at 115. With the unemployment rate now at 6.3% below the 6.5% target that was pulled, we are seeing the 30 year bonds, gold, and the Yen all reverse their trends and show a strong 2014 in contrast to last year. This is putting major pressure against the market as the 3 of these instruments all started on the lows of the year and grinded up to show a reversal and underlying bid by short covering. The consolidation in bonds, gold, and the yen over the last 2 months is the markets way of keeping shorts trapped as the year lows hold and market stabilizes to force them to cover into what is now being seen. The SP500 in contrast, has not changed its 2013 trend as of yet. The year of 2014 started weak with a move down to 1732 only to shake out longs and attract shorts in what turned into a reversal. This setup a V bottom as the 2013 highs were taken out, and clearing the cache of shorts. now it was time to find new buyers to stabilize prices, and this is where we have been the last 3 months, in search of these buyers, which has led the market to consolidate sideways. Throughout this period, all peak highs that attempted to break higher were used as opportunities to take profits into by the market. This shows that the long side is already heavy handed thus finding trouble getting new longs into the boat, giving way for the boat to be tipped for the majority to feel the pain.
Since the December 2012 FOMC statement adding the 6.5% unemployment target to the fed funds rate:
Bonds, Gold, and the Yen (BGY), all front ran the FRB NFP target, moving down heavily for the year 2013, while the SP500 moved up 33%.
In 2014, just as the NFP target reached 6.7% to near the 6.5% target, it was pulled.
Year to date for 2014:
Bonds, Gold, and the Yen, working against a major downward trend last year falling an average of 20.3%, all started the year of 2014 on the lows and grinded higher. This reversal for 2014 is counter to the 2013 trend, however is the way of the market completing its front run into 6.5% target. The SP on other hand, coming off a +33% move in 2013, has held flat for 2014, threading on the highs, fighting to hold its trend versus what bonds/gold/yen are doing. The SP is also needing to take a lot of juicing at these levels as the FRB chair came out on the 31st of March to reassure investors of continued support, WHILE THE MARKET WAS AT ALL TIME HIGHS! Seems to be the last leg of longs are being lured into the market and we did see since March 31st the market ran 20 handles higher into 189250 only to fall 90 lower.
Coming into this week, tax day and a shortened holiday week was tricky. We had FRB chair pump the markets end of March into new highs reassuring investors of continued stimulus, only to see the NFP numbers double top the market and the rally get sold into. The selling picked up with the March lows taken out, confirming a short term double top as it shook out longs and left buyers from the "stimulus" talk trapped. This led to a breakdown on Friday with lows of 180725 going into the weekend.
On Friday our systems triggered many buy signals which gave opportunity to collect up to 32 handles from base hits during the day, however the market remained weak on Friday. Settling near the lows, this put pressure for a flush to take place going into Sunday. This was seen Sunday night with new lows down to 180325 before reversing higher. This triggered new buy signals at 180650 with a 5 handle stop for aggressive buyers. Going into the cash open, the market had retraced up to 182375 allowing to lock in majority of profits and allow runners to work for a day on cruise control. The cash open was followed by profit taking seeing the market fall into lows of 181550 to allow intraday buyers an area to defend, which they did and pushed the market up to highs of 182800 to test the upper vol window. Profit taking led the market to run out of gas and see a shake down into the afternoon, falling down to 180825 to retest the overnight lows before seeing a squeeze up to settle at 182450. Flushing intraday buyers, luring in shorts sub 1815 and squeezing 10 higher.
Monday 04/14/14 reversal off lows:
CST aggressive long signal @ 180650.
Target 1 181150, Target 2 181650 completed prior to the open to lock in 15 handles with runners. Target 3 was scaled at 182650 to lock in 20 handles and leave 1 contract on with a 1814 stop. Afternoon attempted to buy 4 more at 1818 only to see the market dance at the level too long, in turn scratching the position at 1818. Flush kicked out the overnight 180650 runner at 181400. On 6 contracts, 57.5 handles locked in. If one only bought 3 contracts @ 250 risk each total risk of 750, would have allowed to take tgt 1 181150, 2 181650, and 3 at 182650 to lock in 35 handles.