Unemployment Preview – What To Look For and How to Invest

US Markets have been extremely resilient as of late, especially considering yesterday’s Initial Claims data coming in much worse than expectations.  An underlying bid has held this market and dips have been considered buying opportunities.

Yet, as we know, volume has been weak and may continue to be soft as many traders and others in the financial business consider the whole month of August to be a holiday.  But, we are often seeing a flurry of volume in the early part of the trading day when economic data and earnings are released – only to recede as the day progresses. The lack of volume has had the effect of whipping markets around rather ferociously throughout the day.

With that in mind, the Unemployment Data in the form of Non-Farm Payrolls and the Unemployment Rate could severely change how traders and money managers will position themselves for the coming months.  Below we can see where all the “Big Boys” are expecting the Payrolls number to be.

(Click on the Chart for Larger Viewing)

The low estimate amongst economist is a draw down of -160,000 payrolls and the high estimate is a build of 10,000 with Deutsche Bank being the outlier in the bunch.  The consensus estimate is that we will see a decline of approximately 65,000 – 68,000 payrolls.

  • Goldman Sachs is slightly more bearish on this estimate with their prediction of -75,000
  • Barclays is slightly more bullish at -50,000
  • JP Morgan is predicting an even smaller draw down of -25,000

Beyond the headline number, most will be looking at the private payrolls as these are the most important in this report. We already know that there will be a large loss in government jobs as the temporary census worker’s job is just about over. The under/over is approximately 100,000. Any major deviation from these estimates could really change the direction for the markets.

On the upside, if the market were to be able to break and close above the 1,131 level (Intra-Day High from 6/21/2010), we should have some buying pressure come in as short seller’s  (those not already exhausted) will surely have their stops popped.

(Click on the Chart for Larger Viewing)

Major risk to the downside will not be appear unless we can break below the support level of ~1,097. Over the last few weeks, markets have developed a fairly strong short-term trend higher with any dip being bought. This should also provide for some but not extremely meaningful support.

Lastly, to the downside, we have the 20-day moving average at 1,098 and the 50-day moving average at 1,085.  These will further provide support should any bearish deviation come out of the jobs report.