The monthly jobs report is finally here and tomorrow's results should either accelerate the rally or spark some serious profit taking. One possibility is that stocks rally in the morning only to reverse midday and close lower, which would be a bearish reversal and a sell signal. There are still plenty of big money managers looking to lock in gains from 2009.
The reaction to the jobs report tomorrow could be big because there are so many opinions on it from job losses to huge job gains (upwards of +80K to +100K). The consensus estimate just changed from -8,000 jobs to minus zero jobs (unchanged). There is a chance that Wall Street will be surprised by the numbers and the bigger the surprise the bigger the move. I suspect the report will be positive and finally end two years of consecutive monthly job losses. The government plans on hiring huge numbers of people for the 2010 census and while these are temporary jobs they're going to be counted. Keep in mind that if the jobs number is positive it doesn't guarantee a market rally.
We are already long the market with plenty of bullish candidates on the newsletter. If stock rally we should be good. However, what if tomorrow does see a reversal? Then I suggest the following: Check out the NASDAQ. The NASDAQ-100 index has been moving sideways for two weeks. If we see a reversal then puts on the NDX index or the QLD double-long NDX ETF could work. Next is the transports. The transportation index has been stuck in a trading range and looks ready to breakdown through the bottom edge. Traders could buy puts on the IYT transportation ETF. If stocks reverse then energy stocks should see some profit taking. This group has been showing lots of strength lately but the rally has stalled right at the 2009 highs. If the sector reverses here it will look like a bearish double top. Both the OIX oil index and OSX oil services index are seeing the same rally to resistance. You could use the XLE or OIH as potential trading vehicles. Finally, if the market begins to falter then we could see a mad rush to buy puts, which would send the Volatility index (VIX) soaring. You could always buy calls on the VIX.