Unemployment Rate Goes Up and Market Dumps Down

The stock market gapped down at the open on the Employment Report release. Non-farm Payrolls came in at -49k, which was actually slightly better than expectations, but the Unemployment Rate jumped from 5.0% in April to 5.5% in May, which was worse than an expected 5.1%. Besides being the biggest one month drop in UR since 1986, the news will become a political point today. It will be hard for you to go anywhere today without seeing a headline on the internet or TV predicting the end of all life as we know it.

The biggest areas of layoffs were in the Home Construction industry, and the US Auto industry, which is exactly where you would expect them to be.

Remember to keep your head about you today and focus on the charts. The market will gap down a little out of the gate. There will be some selling early in the day because Fund Managers will be more concerned about the "perception" of the news and how other Fund Managers will react, rather than on the news itself. The economic numbers themselves indicate an economy that is grinding along, just as I have said all along. The string of negative Non-farm Payroll numbers month to month is not bullish, and is indicative of a "mild" recession at most, but it does not indicate an "end of all life as we know it" recession. Watch the charts after the first 2-3 hours to see how far the market drops, and if it's shoring up.

7:35 am MT: Energy stocks popped out of the open and I immediately sold all my positions. I will look to re-enter them later in the day if we get a nice intra-day consolidation. I also sold X, but I'm hanging on to NUE, so I have some Steel. I'm keeping the Retail stocks for now because I think the Jobs Report is last months news, whereas WMT told us how consumer spending was going last week. Eventually cooler heads will prevail, and we will get a better consensus on where Big Money wants to take this market, up or down.

7:50 am MT: I was making too much money on NUE not to sell into the pop just now. I also sold POT for a small gain. I think that the Energy and Commodity stocks have every reason to consolidate for several hours on the charts, and every excuse to do the same because of the news. So I'm taking my nice gains and locking them in. I still want a lot of that stuff, but I'm going to wait for an expected consolidation. I could be wrong.....but we shall see.....

Here are the returns for all the call trades I entered in the middle of yesterday to the exits this morning: POT was just above breakeven (I left some good money on the table with this one, but you all know what I think of the Chemicals.....), X was a .45 cent gain, or 4% profit, FTI was a .95 cent gain, or 17% profit, NUE was a 1.00 gain, or 23% profit, ESV was a 1.40 gain, or 24% profit, and CAM was a 1.15 gain, or 37% profit. A very nice one-day of trading.

8:05 am MT: The market cracked down through the lows of the first 30 minutes and I immediately stopped out of the Q's and AMZN. The Q's trade was a .33 cent loss, and AMZN was a .95 cent loss on a half-sizer, so I had very minimal damage on the stops. I am now only holding one position, which is WMT, and which is holding up nicely. It was an inexpensive call to boot.

8:15 am MT: This is a Mega Alert for all you call traders: The market has dropped too far, don't expect it to recover today. It may.....but it is likely done. Yesterday's bounce is likely a Failed Signal. I may even look to do puts later in the day. Pay attention to this mornings price action, we are likely done on the bullish side of the swing that started intra-day on Wednesday.

I am going to go away from the computer for a little while, shake myself off, and come back and see how price action is going. There's nothing for me to watch, and I don't want to get too inside of this morning. I need to back away and think about what my next trades are going to be, and if I can profit one way or another from the probable Failed Signal.

8:30 am MT: I just watched the second Bear Flag of the morning confirm on the SPX on the 5m charts. I am going to sit on this price action and watch to see if we get a Bear Flag on the 15m charts back to 1,390 on the SPX, and a Bear Flag on the 15m back to the 12,450 area on the Dow. It may be that by mid-day I am buying puts on the SPY and the DIA.

8:40 am MT: I am going to float an order to sell WMT just under my breakeven point. I am also floating two more orders to buy puts on the DIA and the SPY if we bounce up into the areas I just indicated above. I don't feel like being a "chaser" today, so if I get the prices I want, then I'll go with it, if not, I'll just sit and spin.....Then I'm going to walk away for a bit and let everything settle in my mind. I may enter more puts at the end of the day, but I'm not sure yet, I want to see how things play out for the next several hours.

8:45 am MT: I decided to chase after all with a couple of little nibblers on the DIA and SPY, I picked up small put positions. I also still have orders to buy puts in the 1,388 area on the SPX, and the 12,450 area on the Dow. And I stopped the WMT position, even though I like it very much. There is just too much uncertainty surrounding this morning to hang on to any calls. I ended up losing .46 cents on WMT. The most important thing for me is to get on the right side of the market, and to keep growing my account.....check and check.

9:00 am MT: Whew!.....what a market eh?.....now I really am going away for a little while.....

1:00 pm MT: I sold the SPY and DIA puts. This sell-off is pretty extended, and we are now into the support zone of the Dow around the 12,250 area. Here are the results: I sold DIA for a .67 cent gain, or 18% profit for about 4 hours, and I sold SPY for an .82 cent gain, or 18% profit for about 4 hours.

I am still trying to decide if I want to buy calls on a couple of Energy stocks, I just may do that. If the market rallies a little, I will also re-enter some DIA and SPY puts.

1:10 pm MT: Here comes our intra-day bounce, if it goes far enough in the next 20 minutes then I'm picking up more puts.

1:25 pm MT: Traders faded the bounce almost immediately. This market is extremely nervous today. I went ahead and picked up the SPY and DIA puts again, and I'll add to the positions if it bounces at the end of the day. We are seeing a Key Day today, which means that the market is likely to stay more bearish for at least the next week or so.

1:45 pm MT: If the market sells into the close, I'm going to sell my puts right along with it.

I made another $400.00 on the second set of DIA and SPY puts, a really nice day of trading for me. I sold into the close because the market was pretty extreme to the downside, with the Dow briefly down more than 400 points. In addition, the indexes are at short term support areas. Here's what often happens in a situation like this, where the market is down 3% or more and near support: somebody, and I don't know who it will be (and I don't care) will yappity yap over the weekend, or first thing Monday morning. I don't know if it will be Benny, I don't know if it will be a Broker, or an analyst, or a Fund Manager, or whoever, but somebody will probably yap. Now, I'm not going to get into why they will yap (but you can use your imagination), but somebody will probably yap. So I'm expecting a "Yapper" to try to put a little tailwind under an "oversold" market (at least "oversold" according to the Yapper). I think there's a decent chance that we get a little bump early Monday morning. It's no big deal for existing puts, but I figure I'm just going to get another chance Monday to play some puts, maybe into Tuesday or Wednesday morning. As always, we shall see.....

One other note: With the price of oil spiking on speculative buying because of analyst's projections for $150 per barrel and a weakening dollar, I am still interested in calls on Energy stocks. The heavy market selling put a capper on Energy stocks today, but if the market bounces for a day or two early next week (possibly because of a brief drop in the price of oil), then I want to make sure I'm ready to go with a few Energy stocks, if they look good.