Thurs Feb 4 12:40 p.m. CT --Markets everywhere are imploding Thursday, as traders unwind "risk" positions ahead of Friday's release of the January U.S. employment report. U.S. stocks have plunged lower, while the U.S. dollar has rocketed higher. Meanwhile, other "risk" trades have been unwound as gold has plummeted and crude oil and emerging markets are down today as well.
TRIGGER FACTORS
A number of trigger factors starting the unwind across a variety of global markets this morning.
Brian Dolan, chief currency strategist at Forex.com, pointed to overnight news from New Zealand that the "fourth quarter unemployment rate there rose more than expected." Additionally, weaker-than-expected news followed from Germany and then the U.S. weekly jobless claims number posted a higher than expected reading this morning.
Initial jobless claims rose to 480,000 for the week ended Jan. 30, versus pre-report expectations of a 455,000 figure.
All of this data "obliterated the feeling that we would get a positive number on Friday's non-farm payrolls," Dolan explained.
"All of that positioning built up Monday-Wednesday this week got unwound in three hours," said Dolan.
RISK UNWIND
Kimberly DuBord, director of research at Briefing.com agreed. "This is unwinding of the risk trade. Commodities are getting crushed. People are re-positioning themselves more defensively ahead of Friday's number."
JOBS DATA
Part of the problem may be the wide range of forecasts currently out there for Friday's January non-farm payrolls figure.
Briefing.com forecasts a 40,000 decline in non-farm payrolls for January. Forex.com's model forecasts a 35,000 increase. The consensus forecast is for a 15,000 rise.
Last month's figure showed a 85,000 decline.
HEADLINE RISK
Traders need to use extreme caution in positions Friday morning. "Tomorrow could be very stupid around 8:30 a.m. ET," said Dolan referring to the report release time.
Because there is such a wide disparity in pre-report estimates, whipsaw reactions are likely once the news is released.
However, bottom line? Dolan still believes the "medium term outlook is continued weakness in the U.S. labor market and a continued sluggish recovery."
His advice for traders? "Look to sell any positive news," Dolan concluded.
THE LONGER VIEW
Taking a look at the longer view on the U.S. stock market, Hugh Johnson, chief investment officer at Johnson Illington Advisors LLC, said "we had a big move to the upside and this is the corrective phase."
Briefing.com's DuBord added on the stock market: "I don't see a lot of catalyst to move higher."
THE TECHNICALS
The technical uptrend on the daily S&P chart has been broken. Figure 1, a daily S&P chart, courtesy of E-Signal, reveals that a bull trendline in place since last August has been shattered.
Additionally, the market is etching a new series of lower lows and lower highs on the daily chart.
The market broke below technical support, from late November, confirming a near term top on the daily chart.
Technically speaking, the near term trend is down for the S&P 500 and the next objective or target lies at 1029, the Nov. 2 swing low.