Traders May Wish to Read Beyond the Headlines

Fundamentals

The first Friday of each month is usually eagerly awaited by traders hoping to successfully trade the release of the non-farm payrolls report. Volatile trading conditions can erupt as soon as the headline payrolls figures are released, even before analysts can dig into the components that make up the report. This morning's release of the July employment picture may be one of those times where traders may be better off delving into the details. Analysts are expecting a decline of around 60,000 jobs last month as the data is expected to be skewed by the elimination of temporary jobs related to the census. What should likely be most important to traders is how private sector jobs fared last month. Here the employment picture may overshadow the headlines, as optimistic forecasters are calling for a gain of over 100,000 jobs, as supportive data from this week's ISM data as well as a better than expected private sector jobs forecast from ADP are among the key reasons behind the rather positive estimates. Traders may also wish to dig deeper into the report to see the totals of average hours worked. Any increase in this figure may signal employers will need to add workers in the near future, as existing workers hours are stretched to the maximum. If the report holds true to expectations, casual observers may be surprised to see the market's reaction to such a negative "headline;" but those traders who "delve into the details" may find themselves on the right side of the trade from those who only focus on the headlines.

Trading Ideas

Among the markets that can make large price moves after the non-farm payroll figures are released are the stock index futures. The E-mini NASDAQ 100 futures can be quite volatile right after the figures are released, and then move sharply in one direction once the entire report is digested. Those traders looking for a positive reaction for equities may wish to investigate selling puts in the NASDAQ 100 futures options. An example of such as trade would be selling the August NASDAQ 1800 put. With the September futures trading at 1901.50 and with 14 days remaining until expiration as of this writing, the 1800 put could be sold for about 7.00 points, or $140 per contract, not including commissions. The premium received would be the maximum potential gain and would be realized if the September NASDAQ is trading above 1800 at expiration. Given the risk involved in selling naked options, traders should have an exit strategy should the trade move against them. Once such risk management strategy to consider might be buying back the option before expiration if the option premium trades at 2.5 times the initial premium received for selling the option initially.

Technicals

Looking at the daily chart for the September E-mini NASDAQ, we notice prices holding well above both the widely watched 20 and 100-day moving averages -- a bullish signal. More visual technical traders may even see a potential head and shoulders bottom forming! The 14-day RSI is in positive territory, with a current reading of 60.31. Although bulls seem to be holding the upper hand, traders should note that trading volume has been rather light during the recent rally. Additionally, there appears to be rather heavy areas of resistance between 1925.00 and 2000.00. Support is seen around the 200-day moving average currently near the 1845.00 area.

Mike Zarembski, Senior Commodity Analyst