Two Ways to Profit from Lagging Jobs Growth

With the slew of economic data being released this week, we’re obviously starting to get a better sense of where stocks could be heading over the next few weeks.

Of course, the focus will be on the Federal Reserve meeting today, where it’s really a no-brainer that Federal Reserve Chairman Ben Bernanke will leave his bond buying in place. Now some may argue that it may have been a different outcome if the government impasse didn’t occur, but I doubt that.

The talking points at today’s Federal Reserve meeting? The Federal Reserve will likely talk about how the economy is showing signs of growth, but that it remains fragile and will need to strengthen. The Federal Reserve will also talk about the soft results from the jobs market, and how it also needs to pick up.

Also Read: NYSE Holidays 2014

The end outcome? A non-response from the Federal Reserve as far as tapering its bond purchases. In fact, based on what is happening, it doesn’t look like any tapering will occur until at least December, but most likely not until Bernanke leaves his post as head of the Federal Reserve in January.

Traders realize the Federal Reserve will keep the flow of money going, which has helped to add support to the stock market. Yet I’m still debating how high stocks can run. The key will be what consumers do during the holiday shopping season that begins in about a month with the critical Black Friday on November 29.

I’m not that optimistic, based on what the retailers said in their September reports. Also, jobs growth continues to be marginal at best, and this will negatively impact consumers’ desire to spend.

The chart of the SPDR S&P Retail Index XRT is showing a possible top and a potential retrenchment to a previous channel in the high 70s range. You may want to consider betting against the retail sector by buying put options or shorting the SPDR S&P Retail Index.

Chart courtesy of www.StockCharts.com

The end result will be pressure on the fourth-quarter gross domestic product (GDP). We will see what the early signs are when the advance reading for the fourth quarter is reported.

But the impact of the weak jobs growth won’t just affect the retail stocks; it is also likely to impact the housing market. Existing and pending home sales were weaker in September, despite the continued rise in home prices. The NAHB Housing Market Index continues to be dismal, with a reading of 55 in October. This metric indicates the confidence of homebuilders and generally, we see readings in the 80–90 level when confidence is high.

As we move forward, it looks like we will see a lag in the demand for homes and a build-up in inventory levels surfacing that could point to a correction in housing. Given this, you may want to consider buying put options or shorting the SPDR S&P Homebuilders ETF XHB, as well, as the chart below suggests a possible downward move, based on my technical analysis.

Chart courtesy of www.StockCharts.com

The bottom line: jobs growth remains the key to building a healthy economy, and so far, it’s lacking. I would be careful going forward as we move through the holiday season. There’s only so much the Federal Reserve will be able to do going forward.

This article Two Ways to Profit from Lagging Jobs Growth was originally published at Investment Contrarians