How I Make My Mortgage Money in 30 Seconds
Monday, June 29, 2009 | Barbara CohenRating:
One of the benefits of daytrading futures is that we have the fun of pre-market trading (before 9:30 a.m.). It's mostly futures traders who are really active at that time, and we get a great head start on making our gains for the day.While there is some pre-market stock trading, it is generally pretty light. Overall, stock traders have to wait until 9:30 a.m. to get any kind of good fills without slippage (i.e., the difference between what you want to pay versus what you might have to pay for your trades).
But if you're in the "market" to harness the power of daytrading futures, today we're going to talk about two opportunities that can generate some quick, impressive returns before your fellow traders open up their trading platforms.
So How Do Futures Traders Have an Edge Over Stock Traders Pre-Market?
Many economic reports are released at 8:30 a.m. Eastern. These reports are all cyclical -- meaning, they come out at the exact same time, on the same day, every month. This is not something stock traders can really benefit from, since it is 8:30 a.m. and the market opens at 9:30 a.m.
There is one trade that I can make every month that pays my mortgage payment in roughly 30 to 60 seconds. This news item comes out on the first Friday of every month at 8:30 a.m. ... the Bureau of Labor Statistics' unemployment report.
Literally tens of thousands of contracts are traded in 30 to 60 seconds. Again, this is not a stock traders' game -- this is strictly a futures traders' game.
On that day, I like to trade the Treasuries -- the 10-year note, to be exact.
I can trade as many contracts as I want, I can get filled with no slippage, and I get a nice $15.62 for each tick that I make. With the unemployment report, I can usually go for points, not just ticks.
During those monthly 30 to 60 seconds, traders have the option of trading a number of different futures contracts because they all react to the unemployment report -- the E-Mini S&P 500, the E-Mini Nasdaq, the E-Mini Dow, the E-Mini Russell 2000, the E-Mini Gold, the 30-year bond, the 10-year note, etc. They each pay out different amounts, but all tend to move dramatically during the release.
A 'Treasury' Trove of Opportunity
As a Treasury futures trader, you must get used to the fact that the movement is always opposite of the news.
If the news is good -- meaning that the unemployment rate went down -- then the E-Mini S&P 500, Dow, Russell and Nasdaq should all go up. And the 30-year bond and the 10-year note should go down.
With good news, the market buys stocks and sells Treasury bonds. No problem for Treasury futures traders; we just go short instead of going long.
If the news is not good -- i.e., the unemployment rate ticks up even higher -- then the 30-year bond and the 10-year note can skyrocket, because institutions will flock toward Treasuries and exit their stock positions as quickly as they can.
When the news is bad, we go long on Treasury contracts.
The Tricks of the Trade
So how will you know what direction the market will go on the first Friday? Of course, if you're not a futures trader, you may think, "Hmm, that's impossible to tell," because you have to wait until Friday at 8:30 a.m. to find out.
But here's the "insider" trick. On the Wednesday before, at 8:15 a.m., the ADP Non-Farm Employment Change Report is released. Again, this is strictly for futures traders. This gives us a bird's-eye view of what will come on Friday morning. While the ADP report does not include government jobs, it is still a good bellwether of market direction.
And, by the way, the ADP release, itself, is another good 30- to 60-second trade.
So, in the first trading week of every month, futures traders enjoy two hot trades -- each of which lasts from 30 to 60 seconds -- and can generally pay your mortgage, property tax and property insurance!
Oh well, stock traders, better luck next time. ....
(Please let us know what you think about Barbara Cohen's article.)
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Rate his article here »
Barbara Cohen
Contributing Editor
The Tycoon Report
Economic Calendar for the Week of June 29-July 3
TUESDAY, JUNE 30
9 a.m., Conference Board Consumer Confidence
* Importance (A-F): This release merits a B-.
* Source: The Conference Board.
* Release Time: 10 a.m. Eastern on the last Tuesday of the month (data for current month).
* Raw Data Available At: http://www.tcb-indicators.org
The Conference Board conducts a monthly survey of 5,000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant.
The index consists of two subindexes -- consumers' appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.
Highlights
* The Conference Board's Consumer Confidence Index for May increased sharply to 54.9 from 40.8 in April. The May number is the highest since last September, but still trails the 58.1 reading seen a year ago.
* The index for May showed that consumers are feeling much better about the outlook. The Expectations Index, which drove the overall reading for May, surged to 72.3 from 51.0 in April and is well ahead of the 47.3 reading from a year ago.
* The Present Situations Index moved up to 28.9 from 25.5 and is still well below the year-ago reading of 74.2.
* Looking six months out, a larger number of respondents than in April feel business conditions will be better (23.1 vs. 15.7), that more jobs will be available (20.0 vs. 14.2) and that income will increase (10.2 vs. 8.3). Strikingly, fewer respondents have plans to buy a home (2.3 vs. 2.6). Also, it is believed the inflation average 12 months hence will be 5.6% versus 5.9% in April.
Key Factors
* Personal consumption expenditures are the hard data, and it is the increases/decreases in disposable personal income that drive spending more so than confidence. Still, the uptick in confidence plays a part in spending decisions.
One should remain open to the idea that there will be some volatility in this series until there is more confidence in the employment situation and the housing market.
Big Picture
* Consumer sentiment indices get way too much attention. The simple fact is that sentiment does not correlate with consumer spending and thus has little predictive value. Consumer spending correlates more closely with income. Sentiment tends to reflect well known factors such as unemployment rates and gas prices more than it predicts future spending patterns.
9:45 a.m. Chicago Purchasing Managers' Index
* Importance (A-F): The Chicago PMI merits a B.
* Source: Kingsbury International Ltd. and Institute for Supply Management -- Chicago Inc.
* Release Time: Typically the last business day of the month at 9:45 a.m. Eastern
There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The New York and Philadelphia Fed's surveys are the first each month followed by the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the Institute for Supply Management and are thought to be of little value.
The purchasing managers' reports are measured like the national ISM -- 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the New York, Philadelphia and Atlanta Fed indexes, 0 is the breakeven mark. These surveys can be of some help in forecasting the national ISM.
Highlights
* According to the Institute of Supply Management -- Chicago and Kingsbury International Ltd., the Chicago PMI dropped to 34.9 in May from 40.1 in April. That was well-below the consensus estimate of 42.0 and is indicative of a manufacturing sector in contraction, given the reading below the dividing line of 50.0.
* New orders fell to 37.3 from 42.1; order backlogs dipped to 26.3 from 36.9; inventories rose to 31.5 from 30.6; employment declined to 25.0 from 31.8; supplier deliveries fell to 43.0 from 45.4; prices paid increased to 29.8 from 28.4; and production held steady at 38.1.
* The full report is available at www.kingbiz.com
Key Factors
* In nearly every component index, readings went in the wrong direction for proponents of the recovery trade.
* Recent reports in this series have shown that the rate of decline in manufacturing activity in the Chicago area has been slowing; however, this May number reflects a re-acceleration in the rate of decline.
* This isn't an encouraging report, but it is also survey data, so it should have less impact than hard economic data.
Big Picture
* The Chicago PMI has little overall economic value, and is only watched by the financial markets because it is usually released one day in advance of the similar national ISM manufacturing survey. A significant move in this regional survey will therefore sometimes be seen as having predictive value for the ISM index.
WEDNESDAY, JULY 1
10 a.m. Institute for Supply Management
* Importance (A-F): This release merits an A-.
* Source: Institute for Supply Management
* Release Time: 10 a.m. Eastern on the first business day of the month for the prior month.
* Raw Data Available At: http://www.ism.ws
The ISM report is a national survey of purchasing managers which covers such indicators as new orders, production, employment, inventories, delivery times, prices, export orders and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction.
The Institute for Supply Management's monthly Report on Business is probably the most widely watched economic indicator produced by the private sector. There are two key reasons for the ISM's prominence. First, its longevity -- the report was first produced in 1931, and after a break during World War II, it has produced continuously since 1948. Second, its leading quality -- the ISM has been one of the better predictors of the business cycle over the years.
Highlights
* The ISM Index for May didn't disappoint. It checked in at 42.8% versus 40.1% in April and the consensus estimate of 42.3%. The dividing line between expansion and contraction is 50.0%, so the May number still reflects a manufacturing sector in contraction, but at a pace that has slowed.
* Encouraging growth news was provided by the new orders component, which tipped into a growth mode at 51.1% versus 47.7% in April. This is the first month of growth in new orders since November 2007, according to the ISM.
* Production rose to 46.0% from 40.4%; employment held pretty steady at 34.3%; supplier deliveries increased to 49.8% from 44.9%; inventories fell to to 32.9% from 33.6%; prices paid jumped to 43.5% from 32.0%; backlog of orders rose to 48.0% from 40.5%; exports increased to 48.0% from 44.0%; and imports edged up to 42.5% from 42.0%.
Key Factors
* The overall number edged above 41.0%. Research from RBC Capital Markets noted that a rise above 41.0% on the ISM has preceded positive GDP growth within one quarter 89% of the time and within two quarters 100% of the time since 1948.
* The component indexes within the national ISM Index moved in a manner that was opposite Friday's disappointing Chicago PMI report, which is to say the ISM components underpinned the recovery argument.
Big Picture
* This is a highly overrated index. It is merely a survey of purchasing managers. It is a diffusion index, which means that it reflects the number of people saying conditions are better compared to the number saying conditions are worse. It does not weight for size of the firm, or for the degree of better/worse. It can therefore underestimate conditions if there is a great deal of strength in a few firms. The data have thus not been either a good forecasting tool or a good read on current conditions during this business cycle. It must be recognized that the index is not hard data of any kind, but simply a survey that provides broad indications of trends.
THURSDAY, JULY 2
8:30 a.m. The Employment Report
* Importance (A-F): This release merits an A.
* Source: Bureau of Labor Statistics, U.S. Department of Labor.
* Release Time: First Friday of the month at 8:30 a.m. Eastern for the prior month
* Raw Data Available At: http://stats.bls.gov/news.release/empsit.toc.htm
The employment report is really two reports -- the household survey and the establishment survey. These two surveys contain a wealth of timely information that justifies this report's status as the most important economic release of the month. This same wealth of information can nevertheless turn into a dearth of knowledge if it is not placed in the proper context.
Given the wealth of data contained in the employment report, it is important to take all of these indicators into account when passing judgment on the report. Looking at payrolls along is often misleading, as the workweek, earnings and household employment measures may be telling a different story. Taken together, however, and taken with the caveats concerning monthly volatility and revisions, the employment report offers the best monthly glimpse of the economy.
Highlights
* "Only" 345,000 non-farm payroll jobs were lost during the month of May. That was indeed much better than the consensus estimate of -520,000. Moreover, the April nonfarm payrolls data was revised up to show a decline of 504,000 positions versus an originally reported -539,000.
* The other headline that jumps out is the unemployment rate, which spiked to 9.4% from 8.9% and is at its highest level since 1983. The big uptick is owed in part to an increase in the civilian labor force, meaning there were more people looking for jobs. That was read in counter-intuitive fashion, though, as a sign that it reflects increasing confidence in the economic recovery.
* Hourly earnings increased 0.1% as expected, yet the average workweek dipped to 33.1 hours from 33.2 hours, which isn't a great portent for a pickup in hiring. By the same token, the -0.2% decline in the manufacturing workweek isn't a great portent for a pickup in industrial production.
* By sector, job losses were seen in every category with the exception of education and health services ( 44,000) and leisure and hospitality ( 3,000). The manufacturing sector saw 156,000 job losses in May.
Key Factors
* The market's initial reaction to the May data was positive, which isn't surprising since traders typically react to cursory headlines. This report, however, doesn't contain good economic news.
* From the drop in the workweek, which suggests hiring isn't likely to pick up soon, to the unemployment rate, which left the 2009 average rate at 8.48% (and above the 8.1% average factored in the White House deficit projection for FY '09), to the increased rates of long-term unemployment and increased rates of underemployment, the May report doesn't set a good stage for a meaningful pickup in consumer spending.
Big Picture
* Employment conditions have worsened significantly in recent months. Through August 2008, payroll declines were moderate, and not at recessionary levels. The September and October declines were much larger and established a new trend. Employment conditions are not likely to improve for quite a few months, particularly as employment picks up only after an increase in overall demand.
