Friday, May 06, 2011

Nonfarm Payrolls Surprise To The Upside

The market is sharply higher in early trading, bouncing back nicely from yesterday's forced selling. I call yesterday's selling "forced" because you have to know that there was serious margin selling going on.

Think about all of the leveraged players out there, like hedge funds, who have been playing the commodity rally for all its worth. When silver broke, it started to put pressure on the commodity complex. But when gold rolled over, and oil got crushed yesterday, we begin to hear that margin calls go out to all of the leveraged players that they either need to exit their positions or put up more money.

So that type of forced selling not only exacerbated the declines in oil, gold, silver, etc, but if these funds needed to raise cash quickly they also likely sold stocks as fast as they could to meet these margin calls. Today the action looks to have calmed down, but I don't think the wounds heal that quickly, and I would expect some continued volatility in the days and weeks ahead.

The good news today is the monthly payrolls report came in much better than expected. The economy added 244,000 jobs vs. expectations for 185,000. Private payrolls added 268,000 jobs. But the unemployment rate ticked higher to 9.0%, likely due to more people re-entering the work force.

Trading comment: It looks like today will be a nice end to a rough week. But I expect more volatility in the near future, so I will look to put cash to work on upcoming dips.

I wrote my thoughts all day yesterday for, and I will post a copy of my comments here later for your weekend reading.


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