Employment Surprise

Last week Digest Issue 18 "Not Enough Surprises [Charts]" suggested the lack of response to better than expected earnings reports by widely followed big-cap technology favorites surprised very few since the good news was already in their stock prices. However, Friday's report of less than expected job gains of only 266K qualified as a surprise and the markets responded, although perhaps not the way some may have anticipated. The Market Review fills in the details.

S&P 500 Index (SPX) 4232.60 came alive last week adding 51.43 points or +1.23% making a new closing high and new intraday high at 4238.04 on Friday. Apparently, the weaker than expected employment report means reduced pressure on the Federal Reserve to begin considering a change to their current ultra-loose monetary policy giving markets, both bonds and equities, the green light.

With both initial unemployment claims and unemployment benefits declining, Friday's employment report of 266K seems out of line. Some analysts claim the report was an anomaly due to seasonal adjustments and will likely be revised upward with the May report since no other related indicators agree with this surprisingly low number.

The trading range near 4200 that began on April 16 and ended with Friday's breakout should provide support on any near-term pullback followed by the area around 50-day Moving Average at 4033.53 should it continue lower.

CBOE Volatility Index® (VIX) 16.69 dropped 1.92 points or -10.32% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, slid 2.04 points or -13.96% to end the week at a 52-week low of 12.57%. The six-month chart below shows the renewed downtrend that began with the spike up in late January. Consistent with new SPX highs declining the IVXM (orange line) confirms the bullish outlook.

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Disclaimer: IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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