Diary of a Financier

Bullish Signals: Spike on Slight Beat in Initial Jobless Claims

In Capital Markets, Economics on Thu 7 Jul 2011 at 09:49
  • Initial Jobless Claims slightly beat expectations this morning.
  • ES/1 spiked 0.6% within a minute of the announcement.
  • Such a large spike on such a modest economic brightspot is usually bullish.
  • I’m holding-off on bullishness, since the final shorts & hedges from traders’ Euro disintegration fears were covered today. Let the market fall to find a longer-term bidder, in accordance to my Outlook.

Initial Jobless Claims were released at 8:15am EST this morning. The report announced 418k in claims, slightly ahead of the expected 420k, and sequentially down from 428k last week.

The report continues a streak of falling claims, a positive trend for an economy in need. My highlight comes from the market reaction: the S&P 500 E-mini Futures (ES/1) contract spiked on the news, moving up a full 0.6% within a minute of the release (0.87% bottom to top by 9am)…

ES1 intraday- premarket spike

That’s a substantial, high volume move predicated by a modest beat in employment data. The takeaway is that traders were positioned for continued bearish economic headwinds. A virtually in-line employment datapoint precipitating a market [over]reaction like this is often extremely bullish because of the feedback mechanism. It’s comparable to a company beating EPS by 0.01% but rallying 5%; often the onset of a cycle wherein the market fades negative news (priced-in) and rallies sharply on a whiff of the positive.

Problem is, I read this steep hike from the June 24 base as short-covering/hedge-unwinding. The intraday action in cash markets showed traders participating in leaps & bounds. With US equity markets at the top of their short-term trading range and nobody left to bid over the next days/weeks, the downside is the most probable detour from here. My Outlook remains the same.

It might be worth watching the cash piles at hedge funds. I’m hearing the big boys are around 20-30% cash. With performance at some of the biggest hedge funds (by AUM) lagging, I would expect some big bidding in equity markets this quarter.





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