Option Investor
Market Updates

Bulls "duck" for cover

HAVING TROUBLE PRINTING?
Printer friendly version

The major indexes are at their lows of the session as today's employment data shows a U.S. economy struggling to create jobs as initial jobless claims rose to by 8,000 to 455,000 in the latest week.

While the major indexes attempted an early morning rally with the tech-heavy NASDAQ-100 Index (NDX.X) 1,098 -1.25%, now off 13- points, coming to within 2-points of unchanged, this morning release of the March Help-Wanted Index of 38 came in below economist's forecast of 38.

The Conference Board's Help-Wanted Index is a demand barometer of the nations job market and March's 38 reading fell 2-points from February's 40. A year ago, the Help-Wanted Index stood at 45.

Ken Goldstein, and economist at the Conference Board said, "The delayed recovery in the job market now suggests that the earliest the labor market will snap back to life will most likely be later this year, or even early next year."

The Dow Industrials (INDU) 8,400 -1.35% is currently off 116- points, the broader S&P 500 Index (SPX.X) 906.78 -1.3% is down 12-points, with weakness found in the S&P Insurance Index (IUX.X) 253.30 -4.2% as sector bulls "duck" for cover after Merrill Lynch cut shares of AFLAC (NYSE:AFL) $29.80 -14.79% to "sell" from "neutral" based on a slowdown in sales growth at AFLAC U.S. According to Merrill, sales growth was only 9% versus its internal forecast of 15%. JP Morgan also downgraded the stock to "underweight" from "neutral" based on valuation and slowing fundamentals in the U.S. Late yesterday, AFLAC reported Q1 (March) earnings of $0.46 per share, which was 2-cents better than analyst's estimates, saying revenues rose 18.4% year-over- year to $2.81 billion versus the $2.76 billion consensus.

Sector action is broadly negative as cash pours into Treasuries. YIELDS are sharply lower today in the 5-year ($FVX.X) 2.845%, 10- year ($TNX.X) 3.9% and 30-year ($TYX.X) 4.821%. The 10-year Treasury June futures contract (ty03m) $114'215 +0.62% is higher by 22/32, while the longer-dated 30-year June futures contract (us03m) $113'16 +1.22% jumps $1 12/32.

In last night's Index Trader Wrap we discussed the 10-year Treasury YIELD ($TNX.X) chart and how a "triangle" pattern was forming, but hadn't really "confirmed" to the upside like the bullish triangles found in the Dow, SPX and NYSE Composite ($NYA.X) 5,072 -1.21%.

Today's trader certainly depicts that of some profit taking in the indexes on the MARKET's response to today's jobless data, but more importantly perhaps, the bond market's action.

One thing I'm seeing today is a "YIELD" type of hunger. The Utility Sector Index (UTY.X) 260 +1.28% is today's sector winner, and I'm also noting that closed-end "junk bond" fund Pacholder High Yield Fund (NYSE:PHF) $8.27 +0.12% finds a fractional bid. My observation with the "junk bond" action, doesn't give me the impression of total alarm toward the economy right now.

To me.... it just looks like the equity indexes may have gotten a little ahead of themselves the last few sessions as it relates to what the bond market was looking at from the economic data.

Per last night's 10-year YIELD chart, there has been no change to that chart, but a downside break at 3.75% would be viewed as a negative for equities.

A quick look at the June Fed Funds futures contract (ff03m) 98.82 does show a slight rise in this contract and currently depicts that of a 28% chance of a 25 basis point rate cut at the June meeting. The more near-term May Fed Funds contract (ff03k) 98.79 still shows a less than 20% chance of a Fed move at the May 6th FOMC meeting.

Jeff Bailey

Intraday Update Archives