Prior to today’s open, the March Nonfarm Payrolls report was released, and the data was very ugly. The domestic economy saw a meager 88,000 jobs added versus expectations of 192,000. As you might imagine, markets sold off sharply on the news. However, stocks have since recovered very well, as most indexes are near their intraday highs. At present levels, the Russell 2000 is the relative strength winner, down only 0.5% on the day, while technology continues to lag, with the Nasdaq off by 1.2%. One particularly interesting thing occurring today is the weird intermarket relationships we’re watching. Currently, bonds, stocks, and metals are all rallying in unison. Bonds are up sharply, higher by nearly 2.4% on the day, while gold and silver are each up about 1.5%. This relationship is unsustainable over time, and it will be very interesting to see how the different asset classes behave going forward.
CHART OF THE DAY
Morgan Stanley (MS) – Financials have been very weak for the past few weeks, and MS is no exception. However, there are signs that it could be forming a tradable bottom. Today, the equity filled its gap higher from 1/18, and this area should provide support going forward. Despite its recent weakness, MS remains higher by over 10% for the year.
Sentiment toward MS remains very skeptical. In the front three months’ options series, there are 1.25 puts currently open versus calls. This shows continued disbelief toward MS, and leaves open the possibility of an unwinding of these bearish bets. Additionally, analysts remain mostly neutral toward the name, and should the stock continue to move higher, this creates the potential for future upgrades. I like an entry here with a stop on a close below 20.50. I would initially target a move to 23, with 25 being a stretch target.
WHAT I’M EXPECTING
Given how well markets reacted to the abysmal jobs report, I still think the bulls are in control of the market. One popular trading mantra is that it’s all about expectations, and the reaction in markets is more important than the data itself. Today’s bounce looks like it’s one of those “it doesn’t matter” days. That said, I would like to see the S&P 500 retake and hold 1550 before loading up on any new long positions. Aggressive traders can use today’s lows near 1540 as a “ripcord” level for long positions going forward.