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Unemployment rises to 6-year high

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Stock futures took a hit to the downside this morning after this morning's jobless numbers showed that U.S. jobless rate rose 5.7% in November. Economists were looking for the jobless rate to rise 5.6%. This morning, the Labor Department said that 331,000 jobs were lost in November, putting the jobless rate just above those levels found in August 1995, when it also reached the 5.7% level. Meanwhile, average hourly wages rose 0.3%, which was in line with expectations.

Stock futures reacted negatively to this morning's economic data and we're currently seeing S&P futures trade lower by 3 points at 1,165. NASDAQ futures also dipped lower and currently trade down 8 points at 1,716 and Dow futures are trading down 41 points at 10,067.

Bonds got a big boost from the higher than expected November unemployment numbers. Buying is brisk in the shorter-end maturities with the YIELD on the 13-week ($IRX.X) diving lower to 1.66%. The 5-year YIELD ($FVX.X) is also seeing buying as YIELD there dips lower to 4.266%, while the longer-term maturities are also finding lower YEILD action with the 10-year ($TNX.X) dropping to 4.942% and 30-year YIELD ($TYX.X) lower to 5.439%.

Taking some profits

Short-term traders holding some decent bullish profits might be taking them off the table here this morning as it looks like both the bond and stock market are going to take on a bit of a defensive posture.

I'll be looking for stocks that are breaking out of basis as they may still offer some very good bullish trades in the coming sessions. Recent bullish market action may have equity bears looking to cover some positions on broader market as they've undoubtedly seen some gains in other positions slip away in the not to distant past.

A pattern that has been working well is looking for stocks where relative strength has just turned higher vs. the S&P 500 (a broader market index). That turn higher in relative strength has been acting like a switch that turns on some juice and seems to cause a near-term turn in supply/demand for the stock and bulls are getting some good moves.

Recent examples have been shares of Cendant (NYSE:CD) and Medtronic (NYSE:MDT). When their relative strength charts reversed 3-boxes and back into a column of X's, the stocks performed very well to the upside.

Yesterday, shares of AT&T (NYSE:T) came very close once again to getting a reversal in its relative strength chart, but came just short once again. T is a stock we've been favorable on for the past several sessions, but I'd sure like to see that RS chart vs. the SPX turn higher.

Jeff Bailey
Senior Market Technician
Option Investor

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