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Labor market continues to weaken

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Treasuries are finding defensive buying again this morning as stock futures sink lower after the Labor Department said jobless claims for the week ending April 26 dropped by 13,000 to 448,000 after setting a one-year high of 461,000 in the previous week. While the decline of 13,000 looks like an improvement, it wasn't much of an improvement, as the prior week's report of 455,000 was revised upward to 461,000.

Today's report had the four-week average rising by 1,250 to a one-year high of 442,000. Jobless claims have risen by nearly 60,000 per week over the past three months as demand for labor continues to weaken.

The average number of Americans receiving benefits over the past four weeks rose to 3.57 million, the highest since November. The 3.57 million figure doesn't include approximately 790,000 receiving federal benefits that are available once workers have exhausted their 26 weeks of state benefits.

In other economic news, the Labor Department said that its initial tall of first-quarter productivity rose at a 1.6% annual rate, which was slightly below the 2.2% forecast of economists. Output rose 1.4%, the slowest growth in a year, while hours worked fell 0.1%, the seventh decline in the past eight quarters. Unit labor costs in the recent quarter rose 1.9%, while nonlabor costs rose 1.3%. Productivity gains have slowed to 2.3% over the past four quarters after rising at a record five-decade high of 4.8% in 2002.

Another strong round of buying looks to be present in the Treasury market this morning with the shorter-dated 5-year Treasury futures contract (fv03m) jumping 8/32 to $114'005 (+0.23%), the longer-dated 30-year June futures contract (us03m) $114'15 is gaining 14/32 (+0.38%), while the 10-year June futures contract (ty03m) is up 11/32 (+0.29%) at $115'15. This morning's action has triggered all of my downside alerts on YIELDS, with the benchmark 10-year YIELD ($TNX.X) currently trading at 3.811% after hitting a morning low YIELD of 3.797%. My "downside alert" on the 10-year YIELD ($TNX.X) was set at 3.8% to give me a "heads up" to a YIELD trade of 3.75%, which would be a double-bottom "sell signal" on this bond's YIELD and see a firm break of the April relative low YIELD of 3.78%. That would then have the March low YIELD of 3.549% coming back into play. This morning's action combined with what we've been seeing in the bond market the past couple of weeks continues to hint of a more defensive look from the bond market, that equity markets have yet to reflect, but warrants stock trader's attention.

S&P futures (sp03m) currently trade down 2.3 points at 913.80. NASDAQ futures (nd03m) are lower by 4.5 points at 1,103.50, while Dow futures (dj03m) have rebounded from their morning lows, but still trade off 23 points at 8,430.

Yesterday marked the end of the month for April and has us establishing new MONTHLY pivot analysis levels. Here's a look at the S&P 100 Index (OEX.X) with our new monthly retracement (red) along with WEEKLY (blue) and conventional retracement (pink) overlaid.

S&P 100 Index Chart - Daily Interval

I've highlighted in "yellow" some "zones" of support (453-454) and resistance (WEEKLY R1 of 466-469) that currently look in play. As such, I would not be looking to put on new bullish positions unless a break above 470 is found, and then I'd want to see SELLING IN TREASURIES taking place.

In last night's Index Trader Wrap, we got a "first look" at the new MONTHLY Pivots for the various indexes we're following in the pivot matrix and the MONTHLY pivots have some good ties with past tradeing. See how the OEX seemed to find our "New" MONTHLY pivot of support on Friday's pullback? This also ties in with the BIX.X reverse head/shoulder "neckline" with also is right near the BIX.X's MONTHLY pivot of 281.50 (our neckline was/is 280.00).

One trade an OEX/SPX trader might want to "plan for" on a pullback is to sell naked, an "out the money" or "at the money" put on an SPX/OEX pullback into the MONTHLY Pivots next week, IF the indexes were to pull back to that level.

For example, I'm looking at the OEX 455 Puts (OXBQK) tonight, and with the OEX currently trading 465.53, the 455 puts are bid/offer $4.30/$4.60. The OEX 450 Puts (OXBQJ) are bid/offer $3.10/$3.40.

I'm also pricing in the May 445 Puts (OXBQI) which are currently bid/offer $2.10/$2.50.

I'm making some notes now as a more cautious trader that is uncomfortable with selling naked puts, will most likely be looking at the May 445's as an "insurance policy" on weakness below 453, where downside protection would then be warranted.

My thinking RIGHT NOW is that the OEX will settle above the 450 level on its May 15th index expiration and if I can sell more than $6 premium in the 455's, or $5 premium in the 450's, sometime next week, then a "high odds" trade for profit looks to exist.

I've made note of "May 12th" where our upward trending regression channel intersects the MONTHLY pivot. That would be 4-day's before the Thursday index expiration of May 16th. Not marked on the chart would be May 16th, which currently has the lower end of regression channel intersecting this WEEK's pivot of 458.11.

Jeff Bailey

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