The Trader Daily

 | May 05, 2014 | 7:30 AM EDT
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Two events from last week stand out above all others in my mind, but they stand out for very different reasons. The first is the persistent strength in long duration bonds. The second is the Bureau of Labor Statistics' (BLS) reported a 288,000 gain in monthly payrolls, and the still declining labor force participation rate (which recorded its lowest reading since February 1978).

I posted two charts in Friday's Trader Daily that illustrate the differing performance between 5-Yr notes, 10-Yr notes and 30-Yr bonds. As those charts indicate, higher duration bonds (30-Yr bonds or TLT) are in a bull market and trending higher. As one would expect, and as we saw during Friday's session, an up trending instrument is more likely to attract buyers on weakness, than sellers on strength (this is technical analysis 101).

Fundamental arguments can be made on a daily basis as to why rates should be rising (and bond prices falling), but even the most logical thesis in the world won't save you if the market is moving aggressively against you. Even if you can't bring yourself to be long TLT or 30-Yr bonds for intellectual reasons, there is nothing readily apparent in the price action that suggests one should be short those products. There will be ample time to sell short higher duration bonds when the presently bullish momentum reverses itself. That time, however, is not now.

U.S. Labor Force Participation Rate

 Friday's headline employment number threw everyone for a loop. But the market's excitement was short lived as the still declining labor force participation rate reminded us that the employment situation in this country is far from feverish.

As far as the equity futures reaction to the data, the Emini S&P 500 futures spiked about seven handles higher on the headline. But again, within a matter of minutes the excitement died down and the futures slid back down to roughly where they were trading prior to the data's release.

Talking heads love to debate such things as the U.S. labor force participation rate, but the bottom line is that it has had zero effect on equity prices. A quick review of the chart above shows quite clearly that the S&P 500 (SPY) has more closely tracked total nonfarm payrolls, rather than the labor force participation rate. Engaging in an intellectual discussion regarding the participation rate is fine, but I'd avoid basing your trading and investment decision on such a statistic.

Traders remain undecided whether the SPY will pull the  iShares Russsell 2000 (IWM) out of its short-term downtrend, or whether small-cap weakness will finally migrate over to large-caps. Our areas of focus haven't changed much over the past few weeks. IWM bears need to break through the 200-day simple moving average and close the ETF beneath its early February swing low. While SPY bulls need to defend the 50-day simple moving average and sustain a break above recent balance highs near 189.

Daily Chart of SPY & IWM

 I've discussed my multi-timeframe affinity for Peabody Energy (BTU) on a fairly regular basis over the past couple weeks, but the time has come for the stock to work through some near term consolidation. If one is utilizing a higher timeframe, there's nothing to do here. The stock, while extended, looks great. If one is operating in a two-to-three day timeframe, however, a better buying opportunity may be a week or so down the road. Dynamic support will likely be found against the stock's 20-day exponential moving average.

Daily Chart of BTU

 Copper futures' declining 50-day- and 200-day simple moving averages are having little effect on Freeport-McMoran Copper & Gold's (FCX) stock performance. Regardless of one's investment timeframe, there's no arguing that FCX is attempting to break higher. As long as the stock doesn't collapse back beneath 32.50, I believe it can work its way toward 38.

Daily Chart of FCX

Any trading or volume profile related questions can be posted in the comments section below, emailed to me at or posted to my twitter feed @ByrneRWS

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