Friday was affectionately known as “Unemployment Day”. All eyes were watching the 8:30am EST news release. It was unclear as to whether or not the report would be positive. Then it happened…albeit a bit too early.
On Wednesday, the Automatic Data Processing Employment Report (ADP) was released at 8:15am EST. A couple of years ago, this report was a true bellwether for where the Market was going on unemployment day. The ADP report has one limitation, however… it does not reflect government job layoffs. A couple of years ago, massive government layoffs were unheard of. But then the flood gates opened and thousands of government employees were let go. After that the ADP report lost its true predictive measurement.
But in the last couple of months, the heavy government layoffs have slowed. So when the ADP report said 119,000 new jobs created, the Market took an immediate dump at 8:15 EST, knowing that the ADP report was probably not wrong this time.
That brought Thursday’s weekly unemployment claims at 8:30am EST. Now the Market had something to cheer about. Unemployment claims dropped from a predicted 381,000 to 365,000. The Market soared back up…which then left Friday.
Now comes the conundrum. Who was right? Was it the ADP report, whose reliability in the past few months has come in question? Or was it the weekly unemployment claims that came in well below expected?
As 8:30am EST approached, the Futures Market stood silent, waiting patiently for the news to break. And then it happened. But wait, it wasn’t 8:30am. Yet the 10-Year U.S. Treasury note futures took off rallying higher and higher….at 8:29, before the news release. Who let the cat out of the bag? How could the institutional traders get the news that early? All the retail traders wanted to know that too — how do you institutional traders rate?
As soon as the news broke, the S&P 500 Futures dropped more than even a 10-handle (40 ticks), starting at a high of 1389 and finally ending down at the end of the day at 1362.50. The Dow itself was bruised, down 168 points for the day. And the 10-year U.S. Treasury notes — well they continued to make huge moves up while their yields made huge moves down.
The interesting thing is, while the 10-year bond yields have been rising in Europe, in America, they have been approaching yearly lows. Right now the 10-year note yields 1.88% while the 30-year bond is at 3.07. One has to wonder here. Stocks have had a big run this year up to now. Quarterly earnings that normally give the Market a kick when Apple and Google report are over. Summer doldrums are just beginning. And the price for treasury notes are hitting yearly highs while yields are hitting yearly lows. Since the 10-year treasury note bounced off its 200-day moving average, the price has jumped with yields plunging to match. In April, U.S. treasury 10-year note yields were nearly 2.5%, today 1.88.
For those unfamiliar with trading, when the stock market goes up, purchasing U.S. Treasury bonds generally goes down. Traders feel they will make better profit from stock market prices going up along with accompanying stock dividends. However, when traders feel that the stock market is not a safe place to be, they take a flight to safety and buy bonds. With yields this low accompanied by big time volume purchases, perhaps this is the right time to exit the market and wait for the summer to be over.
The question at hand is this. Institutional traders knew at 8:29am EST that the unemployment number was going to be bad. Now they are buying U.S. Treasury 10-year notes and 30-year bonds in record quantities, even though the yields have dropped to almost yearly lows. What are they forecasting? Are they saying, sell stocks now before summer doldrums eats into your year-to-date profit? Are they expecting another summer like last year?
Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to firstname.lastname@example.org or call 866-617-2037 today.