The non-farm payrolls number gapped stocks market higher Friday, but they had a hard time keeping their end up. The market showed the second scenario that noted in the Thursday report - that is, some ostensibly good news that rallied stocks higher. Were we buyers? No, that was not the plan moving into the day. We were sellers and were able to take some very nice gain on best stocks to buy that surged up as investors initially rushed into the market and drove our positions higher. We like to buy when the market says to buy, and the patterns were telling us it was time to move in over the past week or two. Then we got another great upside day and had another excellent session where we were able to bank a lot of nice gain. We all saw what happened after that initial rush: investors had second thoughts about the jobs number and the best stock market of 2010 came back closing essentially flat.
The non-farm payrolls came in at -345K jobs, well below the -525K expected. Revisions to April were to the upside; in other words, only 504K jobs lost that month. It is strange to say that "only" 345K jobs were lost, but it was enough to satisfy stock investors at the open and they gapped stocks higher. I specifically focused on the non-farm payrolls because that was really the only good news (if you want to call -345K jobs good news) in the report. It certainly was not the unemployment figure itself, which came in at 9.4%, higher than the 9.2% expected and jumped way over the 8.9% in April. That is the highest reading since August of 1983. The average workweek is still heading lower. It clocked in at 33.1 hours, down from 33.2 the prior month and before that, it had been running steady at 33.3 hours per week. What we are seeing is that the workweek is still fading right now. Job losses may be slowing, I repeat, MAY BE slowing but that is a long way from the losses in the workweek hours slowing down and starting to turn back up. They have to start rising and make that turn back up before we will see any demand for new employees.
This is underscored by Thursday's productivity report. Thursday showed that productivity doubled in April to 1.6% over March's 0.8%. Why is productivity up? Workers have been laid off at a 600K per month clip and there are fewer employees to do the job. Nonetheless, even with fewer workers to do the job, the workweek continues to fall. We know companies still have too many workers for the work on hand because that work week keeps declining. Typically, you will see that when the economy turns back up the workweek will start to rise because the employers are requiring the few workers who are left after all the layoffs to work longer. You will see productivity jump up because there are fewer workers doing more work. We saw it jump up we saw it double but still we saw the workweek going down. That just tells us more employees were laid off. When it turns around and the worker week and productivity both start to rise, then we know that jobs are going to go up as well. This is because employees get worked too much when the business returns and they threaten to leave if they don't get help. Or headhunters start coming around and cherry-picking the best employees. That is when you see hiring start because employers have to keep their good people happy, and that means not working them to death. When business expands - and technology will only carry it to a certain point - companies need the extra workers to do the jobs because you can only push your workers so far.
UCO (Ultra DJ-AIG Crude Oil ProShares)
Company Profile
Sometimes even the ETF's can make you some solid money. We typically prefer swing trading individual best stocks to buy for 2010 or commodities when looking for short term moves, but there are times when the factors all align and make certain ETF's cash cows.
Oil is in such a situation. After the spike to $147 in 2008 it had to correct and it did. Crash you might say. After a long base, however, it is back on the advance. Maybe for economic reasons, maybe for inflation reasons, maybe because of speculation, or maybe a mix of all three. In any event it set up beautifully for a break higher.
After forming an excellent 9 week cup with handle base through mid-May, UCO broke higher on 5-20-09, gapping out of the pattern. We had been watching it and on the break the volume was up but not huge, and when that happens we wait for a test to confirm the breakout. We put it on the report and waited for it to come back to test the breakout point, the high in the pattern, hold that move, then start to come off of the test.
On 5-21 UCO tested back as expected, making an intraday low and bouncing up for a modest loss on low volume. The next session UCO rallied off of that bounce and was holding the move into the close. That was our entry signal. We picked up some best stocks to buy positions at $10.50 and some October $10 strike call options at $2.30. We went out to October because ETF's tend to move at a more stately pace than breakneck gains with individual top stocks to buy we love to play such as SNDA, ICE, CME, etc.
As stated above, however, that does not mean if the conditions are right an ETF won't makes us nice money. The next session UCO added to the upside on rising volume. It gapped higher the next session for another gain. The move was on. Another gap for a 4.7% gain followed. Then yet another gap for a 5.72% gain. Then to start June UCO gapped again, putting in a 5.74% gain and rallying to $13.01 on the session high.
That was moving in on our initial target near the December 2008 low at $13.48, a significant level that was again tested in late January when UCO failed a rally attempt there. With the 6 consecutive upside sessions under its belt we opted to take part of the gain off the table. We sold part of our stock position for $12.95, banking a $23.3% gain. We sold part of our option position for $3.80 for a 65% gain. Not huge, not 200+% as we get on the big movers, but a solid return from a very solid setup and in just 6 sessions.
After we took the gain UCO moved laterally, selling hard Wednesday but recovering to move laterally to close the week. We are going to see how this consolidation plays out, and if we get a new entry point on UCO, say with a test down to the 10 day EMA, we will look at starting a new play that adds to our existing positions.
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IR (Ingersoll-Rand--$22.78; +0.77; optionable): Machinery
Company Profile
After Hours: $22.65
EARNINGS: 04/22/2009
STATUS: Double bottom w/handle. Another neat little 5 week double bottom formed with a break through the 200 day SMA (20.14) in the process. This follows the now familiar November to April base and breakout, consolidating the first move off the bear market low and setting up the next leg higher. Very strong trade Thursday and Friday, part of some excellent trade the past two weeks. Gapped higher Friday and anticipating some general market weakness to start the week. Thus looking for IR to test back toward the 10 day EMA at 21.55 and then we catch it on the way back up.
Volume: 10.172M Avg Volume: 6.667M
BUY POINT: $21.91 Volume=7.5M Target=$26.55 Stop=$20.38
POSITION: IR ID - Sept. $20c (65 delta) &/or Stock
FLEX (Flextronics--$4.10; -0.05; optionable): Printed circuit boards
Company Profile
After Hours: $4.12
EARNINGS: 07/29/2009
STATUS: Double bottom w/handle. This is one we used to play a long, long time ago. It popped up looking for best stocks to buy in 2010 in that familiar pattern of late, i.e. the November to April base, the breakout, then the short May pattern to consolidate the break higher and really set the table for a strong run. FLEX broke over the 200 day SMA (3.93) to start June and spent the rest of the week testing, holding that level and working laterally on low, below average volume. Excellent little pattern and could give us a ride well beyond our initial target.
Volume: 6.308M Avg Volume: 7.928M
BUY POINT: $4.28 Volume=9.8M Target=$5.44 Stop=$3.82
POSITION: QFL JZ - Oct. $2.50c (86 delta) &/or Stock
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