Who Cares About Friday's Unemployment Number?

Includes: IVV, SDS, SH, SPY, UPRO, VOO
by: Joel Elconin

Does Friday's unemployment number really matter? Do you really think any institutional investor is going to make a long-term decision based on such an unreliable indicator? Does it really make a difference to the economy if the unemployment rate is 7.9, 8.0 or 8.1%? Now 10% would be a different story, but let's face reality, the United States is going to struggle to get the unemployment rate much lower than it currently is. With the loss of manufacturing jobs over the past 20 years there is no way that our service oriented economy will ever be able to replace those manufacturing job losses.

But leave it to CNBC to make a bullish scenario no matter what the number is. If the report is good then great news, the economy is still expanding and the market will rally. On the other hand, if the report is a disappointment then we have a greater chance of QE3.

But if the jobs report does not matter then what does? Two important levels in the June S&P 500 futures contract matter. The first level is very well defined, 1352.50-1354.00, the double bottom, (after the release of April's poor unemployment data). The second is the nice old round number of 1400.00. On the rebound, the index has managed to rally above 1400 on three occasions, but has closed above it only one time (barely on Tuesday). And this is after a very strong earnings season where a majority of companies have met or beat the Street's expectations. Perhaps the "smart" money does not expect this trend to continue and wants to get out while the getting is good. An excellent example of this is the sustained selling pressure that has plagued Apple (NASDAQ:AAPL) since the 50 point rally after its blowout earnings report. If the earnings forecasts are so rosy and profits are expected to continue to rise, then why have the futures not blown through the high of the move at 1419.75?

In my opinion, the futures are in a similar pattern to the beginning of the year when they were stuck between 1254 and 1286. The market is winding up for its next big move. The question is, in what direction? Regardless of the outcome of the jobs report, the futures are finally going to either clear and stay above 1400 with conviction and make a new high, or the futures are going to sink below 1350 on their way to a much more serious correction.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.