Stocks Could Follow Employment This Summer

Impact on Investors

The dramatic advance of stocks in 2009 was discounting an economic recovery. Prices have built in the expectation of a continuing improvement in employment numbers for the second half of 2010 and beyond. The surprisingly poor May employment numbers reported here last week have raised doubts about that improvement. In spite of the continuing unemployment claims news this morning, the claims data is also raising doubts about how employment will trend in the coming months.

If employment improvement stalls, stocks will most likely remain stalled as well. A trading range could well ensue for the coming months if the number of employed remains in the current range (138.3 million to 139.5 million for 2010). The trading range I have identified for my clients for 2010 has the Dow trading between 9,500 and 11,500 for the rest of 2010. In a shorter time frame (then next six weeks) I am looking for a trading range on the S&P 500 between 1050 and 1130. Closes below 1050 would have me consider lowering my trading range outlook. Closes above 1130 would cause me to reevaluate the upper range limit projection.

With the uncertainty in the market, it seems reasonable to review positions held for more than a year. Some capital gains should be booked for many investors who have significant gains from the 2009 rally. Holding significant positions in indices is not what I am recommending now. Trading opportunities will exist for index ETFs such as DIA, SPY and QQQQ. The more aggressive may trade leveraged ETFs, such as SSO (2x S&P 500) and QLD (2x Nasdaq 100) or SDS (2x short S&P 500) and QID (2x short Nasdaq 100).

It's time for investors to be on their toes. Stocks could well follow employment this summer. If there is little change in employment levels this summer, stocks may go nowhere. If there is any negative news about employment, the market is especially sensitive and could react badly.

Author is long several S&P 500 stocks. No trading positions in ETFs at the present time.

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