Bombs Away
Well, so much for the improving jobs market. November non-farm payrolls
came in much worse than expected at -40K versus an expected +35K, and the
headline rate jumped to 6.0% versus an expected 5.8%. For a market that was
already back on its heels, this is a shove over the cliff, and futures are
sharply lower.
As our readers know, I love it when numbers have large deviations from consensus
expectations because it forces the market to show its hand, reveal its true
nature as it were. With the market set to gap lower, the dollar getting stomped,
and gold futures about to break out to the upside, things are about as negative
as they could be pre-open, and if the market recovers today, we’ll know it is
very strong. If not — trading range into year end here we come.
Currently DJI futures are down 130.0, S&Ps are off 14.50, and Nasdaq 100 futures
are down 23.00. In Europe, the FTSE 100 is down 89.60 points or 2.22%, the DAX
is off 103.38 points or 3.21%, and the CAC 40 is down 48.54 points or 1.54%. In
Asia, the Nikkei dropped 54.31 points or .61%, and the Hang Seng fell 36.13
points or .36%. As I mentioned above, interest rate futures are sharply higher,
the dollar is sharply lower, crude is roughly unchanged, and gold futures are
sharply higher.
Focus today on stocks that behave well in this selloff and note them for future
reference. Not just defensive switches into consumer, cyclical and drug stocks,
but watch for pockets of strength in areas that are being hurt.
Volatility
A volatility rampage in December, who would have
thunk it? Not me. Yesterday implied volatilities continued to rise, with the VIX
gaining 2.14 to 34.28, the VXN rising .61 to 54.16, and the QQV gaining .62 to
46.33. Key on volatility today. It has had a huge run-up into these payroll
numbers (You think they knew? Nah!), and it will be a good tip off as to market
behavior. In particular, watch to see if it declines when the market goes lower
as a sign of profit taking on long volatility/long put positions — and an
indication of a possible bounce.
Update: (12/05/02)
Nothing done yesterday.
New Recommendations
KSS — Sell half of our January 50/60 put spreads at $5.00
PG — Buy the April 75/85 put spread at $2.50 (25%).
Working Orders (Old Recommendations)
HD — Buy the January 25 calls at $2.00 or better (25%).
QQQ — Subscribers short the January 23/26 call spread at $1.50 (25%), leave an
order in the market to purchase the spread at $1.50 to close the trade.
Recap of open trades
Long-term
Reverse Collars
None.
Buy-writes
None.
Proxy buy-writes
DYN — long the January 15 calls at $3.20 — left over from proxy buy-write
(50%). Left for dead.
Complex Strategies
None.
Directional Positions
None.
Short-term
Call Positions
GILD — Long the January 40 calls at an average price of $1.60 (50%).
Call Spread Positions
CIEN — Long the January 5/7.5 call spread at $.05 (25%).
DIA — Long the December 80/84/86/90 call condor at $1.20 (25%).
QQQ — Short the January 23/26 call spread at $1.50 (25%).
Put Positions
None.
Put Spread Positions
BAC — Long the January 60/70 put spread at $2.90 (25%).
KSS — Long the January 50/60 put spread at $2.475 (50%).
Stops
GILD — $34.50 closing only.
KSS — Two consecutive closes over $74.00.
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