E-Mini S&P 500 Futures Fall 1.4% on Disappointing Nonfarm Payrolls

In case you missed it earlier this morning, after a nonfarm payrolls report that indicated 120,000 jobs were created in March, approximately 80,000 short of consensus expectations, equity futures fell approximately 1.4%, with the E-mini S&P 500 futures (/ES, shown in graph below) falling to 1372 – a level not seen since March 13^th.

Coming on the heels of three days of declines, another 1.4% move down would bring the peak to trough pullback to about 3.5%, which represents half of the 7.0% median pullback we have witnessed since stocks bottomed in 2009. [See Putting the Current 2.6% SPX Pullback in Recent Historical Context for additional details.]

Investors who have benefitted from the 32% gain in the S&P 500 index since the beginning of October are no doubt going to be quick to protect profits in an environment where the consensus is that stocks are long overdue for a pullback. What we have lacked until recently has been a catalyst for that selloff. Tuesday’s FOMC minutes, in which the Fed seemed to be much less inclined to move in the direction of QE3 or other stimulus measures seemed to catalyze sellers. Today’s nonfarm payrolls data provided another catalyst, but it may not be as powerful as some expect. Initial jobless claims continue to trend down and suggest an employment market that is flat or improving, which raises the possibility that the March nonfarm payrolls were a statistical outlier and/or will look stronger in light of future revisions to today’s data.

Perhaps most important, however, weakness in employment is exactly the issue that will cause the Fed to rethink the likelihood of further stimulus measures, up to and including QE3. At the very least, today’s nonfarm payrolls undermines concerns about the growing hawkish stance evident in Tuesday’s FOMC minutes from the March 13^th (there is that date again) meeting. Whether it is current out-of-the-money or at-the-money, the looming presence of a Bernanke put should not be overlooked.

Related posts:

• Putting the Current 2.6% SPX Pullback in Recent Historical Context
• Economic Data: Divergence or Confirmation for Stocks?
• Dynamic VIX ETPs as Long-Term Hedges
• Comparing SPLV and VQT
• Three New Risk Control ETFs from Direxion
• The Case for VQT
• The Year in Safe Havens
• The VIX as a Hedging Tool
• Why Not Point Hedges?
• The Dangers of Anticipating a Market Reversal

[source: thinkorswim/TD Ameritrade]

Disclosure(s): none

New Single Day High in ISEE Equities Only Index on Monday

Lost in all the hoopla over the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) was a historic event in the options and market sentiment world on Monday: a new single day high in the ISEE equities only call to put ratio.

To recap for those who may not be familiar with the ISEE, this ratio was developed by the International Securities Exchange (ISE) and is calculated by dividing opening long call options bought by ISE customers by opening long put options bought by ISE customers, then multiplied by 100. The ‘equities only’ slice of the full transaction pie means that all trades with indices and ETPs are excluded from this data, which also reduces the likelihood that any of the ISEE equities only data includes trades intended largely as portfolio hedges.

Monday’s record close of 410 means the ISE customers were buying four times as many calls as puts. Because there tends to be a lot of noise in the daily data, I like to average the data over a 10-day period. The chart below shows the ISEE equities only index since July 2011, along with the 10-day moving average.

Generally, put to call data is considered to be a contrarian indicator that flags when the masses are becoming overly exuberant or fearful and on Monday at least, exuberance – rational or otherwise – was running rampant, perhaps over the excitement of growing evidence of possible QE3 activity and a Bernanke put in general.

For what it is worth, the prior single day high in the ISEE equities only index dates from December 2010, when stocks were in the middle of a six-month bull move that resembles the current move in several respects and carried the SPX from 1039 to 1344.

Related posts:

• Yesterday’s Unusually Low ISEE Equity Number
• Checking for Athiests
• Equity Put to Call Ratio Hits Ten Month Low
• Chart of the Week: Total Put to Call Ratio
• CBOE Equity Put to Call Ratio Poised to Print Warning
• A First Look at the ISEE
• A Sentiment Primer

[source(s): International Securities Exchange]

Disclosure(s): short TVIX at time of writing