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Minyanville's T3 Morning Market Call: Could Weak Jobs Report Shake Up Market?


The next few weeks could be very light on market-moving news as earnings season slows down a bit.

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S&P futures are up 4-5 handles Friday morning, following world markets higher as the macro economic picture returns to the fore. Today is the first day of February and a Friday, which means the beginning of the month economic calendar will be particularly heavy. The data points we see over the next two hours could determine whether we hold onto these early pre-market gains. The jobs report came out at 8:30 a.m. ET, with most whispers expecting an inline report, and the ISM survey results will be released at 10:00 a.m. ET. A very weak GDP reading on Wednesday was the catalyst for the biggest gut check we've seen in the market this year, but so far it has not led to any substantial pullback.

Traders were on alert for at least a potential small pullback after Wednesday's action in the market. The Transports ETF (NYSEARCA:IYT) and Small-Cap Russell 2000 ETF (NYSEARCA:IWM), which had been two leading indices for the market this year, both broke down below their 8-day moving averages. The S&P held above, so traders were in wait and see mode yesterday to see what the pockets of weakness would lead to. The S&P continued to hold above its 8-day moving average yesterday, and the IWM showed a positive divergence by rallying back up into its 8-day moving average. If we can get a solid jobs report and ISM number, it could be back to the grind higher we have seen so far this year.

Overall the next few weeks could be very light on market-moving news as earnings season slows down a bit. We still have several notable stocks left to report, but the bulk of the big-name reports are behind us. We had some clear cases of the "haves" and "have nots" this earnings season. Netflix (NASDAQ:NFLX) was a clear winner, surging more than 70% in the days after its stellar report. With some upper-range consolidation the stock could continue to squeeze shorts and provide another leg higher.

Apple's (NASDAQ:AAPL) fall from grace was accelerated by a weak earnings report. Growth is slowing and the iPhone, the company's main revenue driver, has reached saturated market share levels in the US and is seeing margins shrink. The stock has seen three days of tight consolidation after bouncing off lows, but has shown nothing yet that it could deliver a powerful snap back. AAPL is currently set to open a few points higher this morning, let's see if it triggers a little bit more momentum to get into the earnings gap.

Banks continue to hold up at upper levels and lead the market. We have talked many times recently about the banks as a barometer for the health of the market, and it is very constructive to see this group, which has been a laggard for the past several years, take the mantle from tech as market leader. Morgan Stanley (NYSE:MS) has perhaps the most calculated long set-up in the group, but Goldman Sachs (NYSE:GS) has re-emerged as its leader.

As traders, we generally don't like to hold stock positions through earnings, but rather trade earnings stocks after their reports are released. This week we have seen two great examples of how you can potentially get great results trading stocks the day after their earnings. Amazon (NASDAQ:AMZN) has been the leading tech stock lately, holding up near highs. The company delivered what looked initially like a weak earnings report, missing on EPS and revenues, but when analysts dug deeper they liked what they saw with margins. The stock gapped up nearly 9%, but filled its gap within the first 40 minutes of the session. Intraday traders looked for confirmation of that first push down off the open as a potential short entry.

Facebook (NASDAQ:FB) was the opposite of NFLX. The stock had seen a big run-up into earnings so expectations were running high, but the company delivered only an in-line report. The stock gapped down as a result, but the gap was filled to the upside early in the ensuing session. Facebook looks to be confirming its higher prices right now, and could have more upside in store this year. We listed it as an A+ long set-up in my 2013 predictions, and it reached my preliminary targets even quicker than I would have imagined.

Overall it remains hard to initiate new long aggressively at these levels, but trying to add to shorts or hedges on weakness has not worked. In these situations, you just have to accept being a bit more hands off and wait for the next compelling set-up. February is historically one of the more bearish months, but we do not trade on assumptions like that. Continue to let the price action do the talking.


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Scott Redler is long FB, BAC, AAPL, DELL, DBC, GE, TBT, WMT. Long LNKD call spread. Short SPY.
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