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Two Ways to Play: The February Jobs Report

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Trading setups for bulls and bears.

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The Bureau of Labor Statistics released the non-farm payroll report for the month of February this morning.

The headline number came in at 175,000 vs. the Bloomberg consensus estimate of 150,000. 

After Wednesday's weaker-than-expected ADP private payrolls report -- which saw net gains of 139,000 vs. expectations of 155,000 and January revised lower from 175,000 to 127,000 -- market participants were looking for a weaker report courtesy of the extreme weather during the month.

Additionally, the employment component of the February ISM services report on Wednesday showed the first month of contraction; the number dropped to 47.5 after 25 straight months of gains. Services jobs made up 70.3% of the labor force in the US in January.

It is important to remember that investors look not only at the current month's payroll change, but the prior two months' revisions as well, and that Wall Street economists have been revising their estimates lower in front of today's release.

On Wednesday, Deutsche Bank (NYSE:DB) economists lowered their estimate to 120,000 from 150,000, and Goldman Sachs (NYSE:GS) lowered it to 125,000 from 145,000. However, the consensus estimate of 150,000 did not change despite whispers to the contrary.

Here's our two ways to play:

From The Bull Pen

Since the February 5 low in the S&P 500 (INDEXSP:.INX), stocks have rallied to hit all-time highs, and the surge this week could indicate that equity market expectations are creeping higher.

Looking at a daily chart of the S&P for the past nine months, we're bumping up against a trend line that has provided resistance in the past. While there is potential for the S&P to reach 1900 or higher (there is projection that works to S&P 1960), there may be better risk-reward elsewhere after the run we've seen.

The retail sector is lagging the broader averages year-to-date and has endured some ugly news of late, including earnings misses from Costco (NASDAQ:COST), Staples (NASDAQ:SPLS), and RadioShack (NYSE:RSH).

With expectations low and sentiment bearish, the Merrill Lynch Retail HOLDRS ETF (NYSEARCA:RTH) could pop short term on good economic numbers, and a move through $61.50 would trigger a breakout.

 
From The Bear Cave

After a 66% run in 2013 and a 15% year-to-date gain, biotech has been the hottest sector in the market -- even hotter than social media.  

However, the hand-over-fist buying that sent stocks like Biogen Idec (NASDAQ:BIIB) and BioMarin Pharmaceuticals (NASDAQ:BMRN) flying has taken a breather of late, and the sector is 6% off recent highs.

Shorting the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) could be a good option for those with a bearish outlook and a high risk tolerance.

If sentiment really shifts, biotech traders could shed even more exposure to the sector, and a break of $260 would be a technical negative.

 


RTH Chart:



IBB Chart:




Also see: Peter Atwater: An 'Oligopoly in Confidence' Puts Global Markets at Risk

Twitter: @Minyanville

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No positions in stocks mentioned.

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