The monthly jobs report showed that the labor situation, though improving, is not improving as quickly as thought. Nonetheless, the markets moved higher today suggesting bigger forces at work.
The jobs numbers came in much weaker than expected with nonfarm payrolls coming in with 50,000 jobs as opposed to the consensus estimate of 140,000 jobs. Furthermore, the unemployment rate expected to come in at 9.6% but came in at 9.8%. The markets don't seem to care. The trend is still clearly bullish after two days of significant movement in the marketplace, and it seems as though the market has no intention of slowing down now.
A couple weeks ago I thought that a lot of the news that was coming out of financial circles was really meant to depress the market and have it move back down towards its 50 day moving average. This presented some pretty attractive entry points for some of the big boys. Whenever fear creeps into the marketplace those who are not really in the loop as far as whether or not the fears are based in reality or just opinions, often will go to the sidelines or liquidate positions. This is one of the reasons that I choose to trade with options.
The noise that surrounds the marketplace can wreak havoc for individuals who are strictly long or short in equity positions. When the market is in a state like this with significant movements both up and down, there are a number of options strategies such as iron condors or straight credit trades that make a lot more sense. While it's true that you would miss any of the significant directional movements such as the ones we've had the past couple of days, it tends to even out the daily fluctuations of one's portfolio and ultimately proves a steady slower approach towards capital appreciation.
The fact that the market is reacting with such little concern over these horrible jobs numbers that came in today suggests to me that the logical direction is up. With that in mind there are a lot of different strategies that those who are trained in options and particularly those who've been through the OptionsAnimal educational program can take advantage of. Strategies such as bull puts, bull calls, and diagonals all make a lot of sense. This market seems like it's going to want power higher at least through the end of this year.
But beware, after this apparent Santa Claus rally has come to an end, and we embark on 2011, the situation may be quite different. Again, those who trade options have the ability to be much more flexible and take advantage of quick changes in the trend.
The large gains that were seen in all of the US-based major averages Wednesday and Thursday would be hard-pressed to continue at such a pace. The likelihood of a short-term pullback or some sort of rest from that type of bullish activity is logical and to be expected. I think though that in the near term, meaning the rest of December 2010, we can expect the overall market direction to be higher. However, as always, I trade from a spread trade or hedged position. We just never know where the next piece of bad news may come from, particularly with the issues still unresolved throughout much of the European Union and who knows where else.