What Will Unemployment Be?

mgm mirage beat earningsEvery day that goes by the market is becoming stranger and stranger. Today was no exception. We're beginning to see more of a separation of sectors in trading. For the last few months, it has seemed that most all stocks were trading in the same direction. If financials were down, so would tech, energy, and pharmaceuticals. However, lately, we are beginning to see these sectors begin to develop their own investment outlook as more variability is coming into the market. Much of this is due to the rather stagnant trading we've had the past few weeks, but it is something worth noting.

There was a lot of anticipation going into trading this morning as many were waiting for more hopeful words from our Fed Chairman Ben Bernanke. Lately, any government official or staff member at the podium has seemed to stimulate investors to want to go long. However, today was not the case with Big Ben. Due to much boredom and the large quantity of rambling which took place, I did not catch the whole hearing of Bernanke with Congress, however, I heard enough to make me even more nervous for our economic future here in the short term.

I especially enjoyed Ron Paul's tough questions for Bernanke, asking him about upcoming massive inflation worries and the possibility of making The Fed more transparent. As a response, Bernanke seemed not as worried about inflation (I don't know how) and felt that The Fed could become "more transparent" in some areas, but that other functions of the Fed would best to be left not public. Of course, why should the public be informed about all of the corporate and bank manipulation that is going on, as well as the foreign policy manipulation. Slowly The Fed is becoming more and more like The Men in Black. If the public knew of the beasts The Fed had to combat, we would most likely all go insane.

crash market stocks podcastAt any rate, if anything, Bernanke's words were a let down. I could definitely sense doubt in his voice as he attempted to remain as optimistic as possible and you can't blame him, that's his job. Unfortunately, when he makes comments like commercial real estate is fine, and you are professional in that industry, it is easy to see just how little information they are giving to the public.

MGM and LVS soared today due to another case of "better than expected earnings." Even though MGM suffered a 20% loss in revenues, this amount was small enough to send the stock up over 40% at one point during trading. Of course, no one failed to mention that the big Vegas company did sell one of their prized assets (Treasure Island) this past quarter for over $700 million, which I'm sure helped quite a bit. I said in the chat a month ago, that LVS was one of my favorite long gambles, as either it was going BK or it was going to soar, due to a confidence brought back to financials. For those that bought in, I applaud you.

However, with such big increases like we saw today, I can't help but think of the big shorting opportunity there is for me with LVS now. LVS, owner of the Venetian hotel in Las Vegas, is going through some serious debt problems. I understand they are considered similar to MGM, however, they are in much different boats. I actually wanted to maybe pick some puts up today, but missed my opportunity. I'm sure an opportunity will present itself either tomorrow or Thursday.

Friday we will be receiving unemployment data, which always sparks a reaction in trading. Just a warning for bears, there could definitely be some buying momentum building into the end of the week. Thursday we have the results for the bank stress tests, which I still believe will be nothing but praises to the banks, noting that all or most are well capitalized, at least when placed in front of the measly stress tests. If we see such a move, the bulls could find more support when a "better than expected" unemployment number is released. Market is expecting a horrible -643,000 jobless report, which for April, would be a very devastating number. I would expect the number to most likely not be this bad, which once again should cause for this sense of cheering from investors. If unemployment numbers end up being this bad, I would be running for the hills, however, I am sure bulls have a good rebuttal prepared in case of the bad news. I believe these are just a few reasons why much of the bear volume is sitting on the sidelines at this point.

So even though it is boring, I will still patiently wait through some of these uncertainties so that I can start to see more clarity in the market. I may look to double up on some options, by buying and selling calls and puts of the same stock at different strike prices in order to pocket the premium difference. As expiration nears, these plays become more appealing to me.

Tomorrow could be another green day due to some "better than expected" Disney earnings which were released after hours. However, GM's desire to have a 100 to 1 reverse stock split is not sitting very well with investors after hours, which it shouldn't. That is usually done as a last attempt to salvage value. So who knows. As I've said before, I believe these over-corrected market expectations which are manipulating investor's reaction will eventually come back to bite these company's stock price. The same goes with the economic data like Friday's unemployment rate. So we'll see how these companies can sustain, when enduring 30-60% drops in revenue. MorningStar is a good place to keep track of company's earnings, check out the free trial: Morningstar - Valuable insights and innovative portfolio tools. Get the Morningstar advantage with a FREE 14-day trial membership! Times are becoming more and more interesting and I believe some big opportunities are around the corner for me. Have a great night and Happy Trading.

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