Jobs Report Reactions

Nonfarm Payrolls are announced on Friday before the open and here’s what we know:

  • The report is watched by absolutely everyone.
  • Heavily gamed by investors on virtually all time frames.
  • Overrated but still more than capable of moving markets (see previous two points).
  • Based on a data set so large that the variance in the report is impossible to predict.

So we have a closely watched report, gamed by market participants of all stripes where even the most experienced and connected analysts struggle with estimates, and even when they nail the number the market can react entirely opposite to consensus.

What’s the edge? Play the reaction. The report is released at 8:30AM which gives futures traders a full hour to push the market in one direction or the other. This pre-market movement can create large opening gaps. Big gaps have big emotion baked inside.

Here are the most dominant intraday patterns for big gaps in either direction tomorrow.

Gap up: 0.5%:

nfp-gap-up-sample-8-february-6-2014

Gap down 0.5%:

nfp-gap-down-sample-8-february-6-2014

 

There are plenty of other edges depending on how things play out  and who is on what side of the trade. Hopefully this exercise will help you visualize the potential outcomes of this potentially volatile day.


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