Entering a gloomy June, “bad” is just bad judging by investor reaction to weak manufactured overseas and stateside BLS jobs data. As of 10:40 ET the SP-500 (SPY) is off 1.90% as bear flag confirmation confronts an agitated bull at the less-than-simple 200SMA.
To have sold in May and walked away worked out quite well in 2012 with the SP-500 off a bit more than 6.0%. Entering the perennial June Gloom within the market’s broader “Worst Six” period, investors are off to another historically correct start as the latest bullish evidence of QE3 growing ever more real, is instead lost on investors intent on bearishly faultfinding weaker-than-forecast nonfarm payrolls and disappointing overseas PMI data.
By the now well-treaded numbers, May’s BLS nonfarm payrolls grew by a less-than-great 69,000 compared to Street views of 150,000. Similarly but worse yet, private job creation amounted to just 82,000 versus estimates of 168,000. Unemployment also ticked up one-tenth of a percent to 8.2% as those exiting the ranks of the labor pool were no match for fresh recruits trying and failing to enter.
Data out of Europe overnight has put the region’s manufacturing sector under further bearish scrutiny. Weak results were led by Eurozone PMI data for May which fell deeper into contraction territory to a level of 45.1. At the same time, the UK’s PMI reversed course sharply from April’s above-the-line expansion reading of 50.2 to a three year low of 45.9 for May.
From across the other pond, a pair of PMI reports for China also proved disappointing . The official PMI fell by a steeper-than-expected 2.9 points to 50.4 versus forecasts of 51.3. Separately, the HSBC “flash” index dipped to a revised 48.4 from 48.7 and further below April’s 49.3 reading.
In those intertwined markets of influence, the 20-Yr (TLT) is up 1.55% to fresh all-time-highs. The bid has turned a technically risky, overbought shooting star candle outside the upper Bollinger Band into a more popular and panicked situation wherein parking capital for no yield on an inflation-adjusted basis, is the order of the day.
Less risky, risk aversion buying has shown up in Comex Gold (GLD) as the US Dollar (UUP) acting as a safe haven loses steam. Intraday, GLD is up 3.20% and confirming a bumpy weekly double bottom with an engulfing Harami Hammer pattern.
Somewhat surprising given Friday’s bearish PMI reports, the EUR/USD is finding a modest bid after striking fresh lows. The currency pair looks to be benefitting from news Debt PIIGS constituent Ireland has approved a fiscal treaty with the EU.
Finally and in those sometimes accurate heat-seeking option markets, the CBOE Volatility Index ($VIX) is up about 11% near 26% and session highs. In front of the weekend, the action shows a deliberate refusal by bulls to graze optimistically on theta or time decay and in sharp contrast to your typical summer Friday.
For contrarian bulls eyeing equities in and around the SP-500’s test of its 200SMA, the fore-mentioned action in the VIX is constructive. And in conjunction with a “just shy” fearful short-term 10SMA of 13.85% compared to mean-reverting stretch signals of 15% or greater and prices historically elevated; this could be one of those “good ‘nuff situations” for traders to get bullishly “stimulated”, especially if a certain government worker shows up with a special delivery.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
