Unemployment Numbers, Market Direction and Put Selling – Having A Map

The unemployment numbers this morning for the month of November 2013 came in better than expected at 203,000. The unemployment rate fell to 7.0 percent  as employment gains seemed to point to a stronger economy ahead. Yet the belief was this type of report would push stocks lower primarily because it meant that the Federal Reserve might begin to taper the Quantitative Easing program it is currently engaged in. Yet instead stocks shot hiigher. It is times like this when having a map makes a big different to investing in general. In fact when I review the market direction at the close of each day I am plotting my strategies against a map based on the market mood, investor sentiment, market direction and underlying statistics.

The Underlying Statistics

Playing With Numbers

Like every report there are always other “takes” on the report. For example the unemployment report today shows that while the unemployment rate is at its lowest level in five years (since Nov 2008), it also shows that much of the employment changes are a result of people not looking for work. In other words, the number of people actually unemployed seems to not budge but the number not seeking employment continues to drop off. Therefore the unemployment rate itself continues to decline.

Seasonal Factors

Then there is the seasonal factor. Many investors and economists wonder how many of the jobs for November were created by part-time holiday employment opportunities which may disappear after the Thanksgiving to Christmas season ends.

Government Workers

Then there is the return of government workers back from the October government lock-out. Their numbers alone could account for better than 1% on the move from 7.3% unemployment to 7.0%.

The Sentiment

Investors See What They Want To See

The unemployment report and the “take” by investors shows that the sentiment really is more a “we see what we want to see”. In other words the sentiment is stocks can go higher. But to believe stocks can go higher means taking into context what the Fed may do next. The statistics above are enough that investors “feel” they can come to conclusion for now about the Fed.

Back To Tapering

All of this brings investors back to the question of when the Fed may taper.  The majority of investors are now of the opinion that the Federal Reserve will still want to see solid, reoccurring evidence that the economy is healing well and jobs are being created each and every month. In past recessions, improvements in jobs was normally to the tune of 250,000 a month. That is the type of recovery the economy has been used to in the past. This recovery has not produced those kinds of steady numbers yet. So sentiment is the Fed will remain committed and not taper yet.

The Mood

Last is the mood of investors which is still optimistic with a dash of nervousness thrown in.

Back To Market Direction

Understanding the impact of emotion on stocks goes a long way to understanding how to invest. Each night I look at the market direction technical indicators. While nothing is fool proof in investing just as in life itself, applying the proper technical indicators paints a picture of the mood or emotion of investors as they approach investing.

Over the past 5 days I have written each night that the mood was poor, weakness was creeping in and investors were nervous about the jobs numbers and the prospect of Fed tapering in December if the numbers were good. But at the same time I also wrote that those selling covered calls should be careful to consider closing in the event we get a big jump higher and that the mood while poor still showed that investors were bullish and want to push stocks higher.

For those reasons I continued selling puts on many stocks because as the numbers kept coming in they continued to point to strength in the economy and in the market itself.

If we look at just the chart alone you can see 1800 level for the S&P has been the “line in the sand” or resistance for over a month. The key though was that despite this the market refused to sell-off. Then over the last previous 5 days the market moved down 34.46 points for a loss of about 1.8%. But I pointed on that on Wednesday the intraday low was lower than yesterday (Thurs) and I had expected a bounce back on Thursday based on the bounce from the afternoon of Wednesday. The inability of the S&P 500 to make a lower low on Thursday was a clear signal that investors were sitting waiting for a chance and a reason to buy stocks. This resulted in the big jump this morning.

market direction outlook and mood

Understanding market direction and how much the emotions of the investors weigh on the price of stocks is paramount to successful investing. Selling puts means earning income and profits while the market dips. Playing those dips is essential to growing portfolio.

Underlying Statistics, Sentiment, Mood, Direction

Four keys to remember when investing through selling options and trying to pick stocks at market dips are, sentiment among investors in general, their mood for the moment, underlying statistics and the market direction. The sentiment of investors at present is that stocks are worth buying. The mood is one of caution but a desire to see further profits. The market direction is still up. Underlying statistics still point to gains because it is a rare event when the stock market crashes while the weekly unemployment numbers improve, the unemployment rate improves, bears talk incessantly about a market high and it crashing and investors mood remaining cautious.

Because stocks are driven so heavily by emotion, these four keys are worth keeping on the investing radar. Once the weekly unemployment numbers start to swing higher, the rate itself start to rise, and investor mood become overly buoyant, then it will be time to be cautious.

Investors Are Optimistic

In general investors are an optimistic bunch and tend to look for reasons that stocks will move higher. Today’s unemployment report shows that while the numbers might point to the Fed deciding to taper sooner rather than later, investors read what they want into these types of reports because overall they believe stocks can move higher. You could tell from the last few days of light selling that investors were hopeful there would be enough information in the jobs reports to keep the Fed on hold for now. After the release this morning, they believe they have seen evidence the Fed will wait longer. That’s all they needed to begin buying again.

Put Selling Is An Incredible Investing Method

Into this type of environment, Put Selling is an incredible investing method. It affords those of us who believe in it, the potential to continuously profit from the mood swings of investors but stay slightly away from where stocks are presently trading. This allows us to pick up small gains here and there which in the end, add up to significant returns to the overall portfolio.

Over the past 5 days of declines, a number of exceptional opportunities arose in a variety of stocks. None of them required large amounts of capital and all provided decent returns. This is what makes Put Selling a consistently winning strategy.

Now you know why investing means having a map.

Market Direction Internal Links

Profiting From Understanding Market Direction (Articles Index)

How I Use Market Timing

How I Use Market Timing

Understanding Short-Term Signals

Various Market Timing Systems

Market Direction Portfolio Trades (Members)

Market Direction External Links

Market Direction IWM ETF Russell 2000 Fund Info

Market Direction SPY ETF 500 Fund Info