This morning, the Labor Department released its monthly update on U.S. jobs. The general expectation was for slower job growth in April, with around 178,000 new jobs.
What we got was much, much more; nonfarm payrolls rose by 253,000. Unemployment is running at 3.4%, below predictions, and is tied for the lowest level since 1969.
The key focus, though, is wage growth: Is the Fed's policy of raising interest rates doing enough to cool off wage inflation? The numbers suggest... no. Average hourly earnings rose 0.5% for the month, up 4.4% from 2022. (While all this is happening, Sen. Bernie Sanders is now trying to more than double the minimum wage from $7.25 to $17.00.)
Regardless of the news, we are looking today for reversion trades on just about every high-volume stock with options that we can get our hands on. On Fridays, specifically, we want to trade the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust ETF (QQQ), which tracks the Nasdaq 100, alongside a host of stocks like Ford Motor Co. (F) and Apple Inc. (AAPL).
This chart shows how we'll pick our shot...
We are looking for stocks to "revert" off the second standard deviation band that you see below. It happened yesterday at 10:30 AM, and 12 PM, allowing traders to either trade the SPY, the leveraged Direxion Daily S&P 500 Bull 3X Shares (SPXL), or options on the SPY that expired at the end of the day. This strategy, which I'll outline later today, can be a really great way to mix risk-reward during Friday trading sessions.
We are looking for stocks to "revert" off the second standard deviation band that you see below. It happened yesterday at 10:30 AM, and 12 PM, allowing traders to either trade the SPY, the leveraged Direxion Daily S&P 500 Bull 3X Shares (SPXL), or options on the SPY that expired at the end of the day. This strategy, which I'll outline later today, can be a really great way to mix risk-reward during Friday trading sessions.
Here's What I'm Watching Today (May 5, 2023)
Contagion: There are plenty of people now dancing on the grave of PacWest Bancorp (PACW), Western Alliance Bancorporation (WAL), and Bank of Hawaii Corp. (BOH).
But we've reached a point where the insanity has translated into outright danger. It's important to stress that PacWest isn't exactly a crypto-bank with Barney Frank on the board of directors. It's brick-and-mortar operation, with quality loans with long-term relationships. If this spreads to a bank like PacWest, it can spread anywhere.
There are two major forces at play here that require examination immediately. First, it's the basic nature of fractional reserve banking. But second, it's the advantages that the TBTF banks have over everyone else. A bank like PacWest takes deposits, puts money into safe Treasury bills, and, maybe, gets a 4.5% yield on the one-month T-bill. That's how long they'll wait for money...
But a TBTF bank like JPMorgan Chase & Co. (JPM) (which has close to sixty times the assets of PacWest) can put every dollar with the Fed today and receive more than a 5% yield, then get all that money back tomorrow morning. It's completely and totally insane.
Oil Rebounds: Yesterday, I taught people about the MicroSectors US Big Oil Index 3X Leveraged ETN (NRGU), which is a completely unsafe ETN, suitable only for those tormented souls with chronic, crippling addictions to trading oil prices.
NRGU aims to provide investors with returns that match triple-leveraged exposure to the underlying performance of the Solactive MicroSectors U.S. Big Oil Index, which tracks the top 10 oil-and-gas companies in the U.S.. But watch the Relative Strength Index (RSI) and the Money Flow Index (MFI). In the case of both the RSI and the MFI, the two indices are down at oversold levels that we haven't seen since July 2022, September 2022, and March 2023. West Texas Intermediate (WTI) crude prices are up 3% this morning after falling down into this range. Just saying.
Politicking: It's President Joe Biden against House Speaker Kevin McCarthy on the debt ceiling. As the actual future of the dollar hangs in the balance, Biden started calling McCarthy names and claiming the GOP would default on the debt. As I explained in Midday Momentum yesterday, no one in Washington knows what they are doing. And the explosion of the federal debt to $50 trillion - as projected by the Congressional Budget Office - is catastrophic to your money. Buy some gold, own oil stocks, and get out of zombie stocks. Your future is at stake.
The post Morning Update: The Jobs Report Is Out - Time to Trade Options appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.