Jobs and a Late Pop

 

 

by Larry Levin

Friday was an anticlimactic way to end the week. It was dead. Although there was an interesting pop very late in the day, which I will discuss later, the overall day was a real yawner.

The good news for the week (yes, I said GOOD NEWS) came in three reports. The ISM manufacturing report was far better than expected; the non-manufacturing ISM was better than expected; and not to be outdone, the monthly jobs report was much better than anyone had expected. In a perfect world the politburo of finance, the Federal Reserve, may have slashed the interest rates to zero and yes maybe even QE1 to save the money markets, but not QE-Lite (POMOs) and certainly not QE2. (By the way, the market is already talking about a QE3 and QE4!) Had the market been allowed to trade the fundamentals without all of the latter QE nonsense, the indices would have ripped in a major way this week. To be sure, it went up anyway but that was despite the good news, and solely due to the central planning politburo: Backstop-Benny & The Jets.

As I said, the Jobs Report was good but it needs to radically improve to change the overall economy. The economy must add (roughly) 150,000 jobs per month just to run in place. In other words, 150,000 new people per month are looking for jobs; therefore, the any print under 150k equates to a worsening unemployment rate. Indeed, Friday's stated unemployment rate did not change at 9.6%. But let's not forget how the Bureau of Lies & Statistics (BLS) counts the employed - it's half-arsed. The real unemployment rate (U-6) is 17%.

Here are a few more highlights...

* Unemployment rate: 9.64%, just shy of 9.7%, compared to September's 9.58%
* U-6 Rate at 17%, down 0.1% from September
* September data revised from -95K to -41K
* US Change in Nonfarm Payrolls (Oct) M/M 151K vs. Exp. 60K (Prev. -95K, Rev. to -41K)
* Change in Private Payrolls (Oct) M/M 159K vs. Exp. 80K (Prev. 64K, Rev. to 107K)
* Birth/Death adds 61K after adding just 11K last month
* Those unemployed for over 27 weeks increases to 6,206, represents 41% of total unemployed
* Change in Manufacturing Payrolls (Oct) M/M -7K Exp. 5K (Prev. -6K, Rev. to -2K)
* US Average Hourly Earnings (Oct) M/M 0.2% vs. Exp. 0.1% (Prev. 0.0%, Rev. to 0.1%)
* US Average Hourly Earnings (Oct) Y/Y 1.7% vs. Exp. 1.6% (Prev. 1.7%)
* US Average Weekly Hours (Oct) M/M 34.3 vs. Exp. 34.2 (Prev. 34.2)
* For the first time in history, part-time poll workers are counted as full time to boost the data. click here to read

As I said at the beginning the overall day was a real yawner, until the end. The late pop was not a screamer but it did come out of nowhere and was interesting, which is why I am even bothering to mention it at all. The reason behind the late surge was unknown until after the close, but many students in the VTR took advantage of it by reading the tape. The buying volume lifting the offer was just too much to ignore even in an amazingly slow trade (up to that point). That volume was the clue that something was afoot, which led to a quick 5.50 point rally.

It was reported after the close that two primary dealers (PD) pulled the borrow in the SPY. This means that the two PDs told their clients that they were shutting off all ability to short the S&P500 via the SPY, whether it was for speculative purposes or even to hedge. Can you imagine the result? No selling allowed means the buyers have free reign to run the market up. It also suggests that those who were short would be forced to buy-in their positions, since they now know that two PDs have shut off the selling and thus those who are already short know that nobody will help drive the market lower in favor of their already short positions. The net result is a pop - no doubt.

Only one of the PDs was named - Bank of America (BAC) - that I could find. Earlier in the day we read that BAC had a STELLAR trading quarter. In its 10-Q we read that BAC traders went the entire 3rd quarter without a single day of losses. Isn't that interesting?

Now I'm not suggesting anything, but wouldn't it be very easy to make money if YOU had the ability the buy up all the SPY & ES that you wanted in a very slow late afternoon...then pull the rug out from under the short sellers by "pulling the borrow?" You could safely buy thousands - or tens of thousands - of the SPY and/or ES futures, and profit millions of dollars in a few short minutes by creating a panic that you are 100% in control of.

In fact, with that type of power one might even be able to go on an extended winning streak, without a single losing day in the 3rd quarter for example...just like Bank of America.

Trade Date: 11/5/10
E-Mini S&P Trades*
(before fees and commissions):

1) No "Secrets" trades filled.

2) Algorithm positions (7)

3) “Reading the Tape” positions (5)…combined Secret’s, Algo, & “Reading the Tape” total… -2.75

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