The Disconnect Across the Pond

Dear Slingshot Trader Subscribers, 

If you’ve picked up The Wall Street Journal or turned on CNBC anytime during the past year, you know things aren’t exactly going well in Europe – economically speaking. Sure, we’ve avoided the train wreck that could have been with the Greek debt crisis, but there is still plenty to worry about.

Here are a few economically unsettling charts (all courtesy of ForexFactory.com):

Eurozone Unemployment

chart1

While we’ve been watching unemployment rates in the United States decline slowly, Europe has seen its unemployment rate climb to a new high of 10.9%. As you can see in the chart above, this trend started in late 2011.

Eurozone Manufacturing PMI

chart2

Yesterday, we saw the Institute for Supply Management (ISM) tell us that Manufacturing PMI (Purchasing Managers Index) in the United States is robust and growing. But as you can see in the chart above, Eurozone Manufacturing PMI has been declining. Any reading below 50 (the Eurozone crossed this line in September 2011) indicates the manufacturing sector is contracting.

Eurozone Gross Domestic Product (GDP)

chart3

Lastly, while the economy in the United States is still growing – albeit at a slower rate than we had all hoped – the economy in the Eurozone is contracting. Looking at the chart above, you can see that gross domestic product (GDP) is actually in negative territory. That’s not a good sign.

The Reaction of the Dow Jones Industrial Average

Here’s where the disconnect across the pond comes in. At the same time we are seeing this negative news coming out of Europe, we are watching the Dow Jones Industrial Average climb to new four-year highs.

chart4
Chart courtesy of MetaStock.com
 

So what gives? How long can this disconnect last?

Well, it looks like some of the negative news we have seen in Europe is starting to make its way across the pond and is showing up in this week’s jobs data.

ADP Employment Report

Today we got the ADP Employment Report, and it was disappointing, to say the least. Analysts had been expecting the number of new jobs created to come in at 178,000, but the actual number missed the mark and came in at 119,000.

chart5

When you combine this disappointing announcement with the disappointment we got last week with the GDP miss in the United States, it makes you step back and wonder if the struggles we’ve been watching unfold in Europe are finally catching up with us here in the United States.

The Bottom Line for Next Week

We will know a lot more when the official employment data is released by the Department of Labor on Friday at 8:30 a.m. Eastern. If the numbers come in worse-than-expected, watch for the stock market to retreat from its recent highs as investors start taking profits off the table. If it comes in better-than-expected, watch for investors to hang in there as the market continues to channel in the same consolidation zone we outlined two weeks ago.

This Week’s Events

Here are some of the news events that we may trade in the next week or so. We’ll be discussing some of these in tonight’s webinar.

May 3 – Weekly Jobless Claims
May 3 – ISM Non-Manufacturing PMI
May 3 – Youku (YOKU) Earnings Announcement
May 4 – U.S. Employment

TRADE REVIEW

When it’s time to open or close a trade, we’ll send you alerts via e-mail. You also can sign up to receive text messages regarding our trades. For more info about our SlingShot Trader portfolio, you can read trade alerts here and view our portfolios here. You can also see more trade-specific details by clicking on the trade links below.

Open Positions

These are the SlingShot Trader positions that are currently open and active.

Clean Energy Fuels Corp. (CLNE)On May 2, we recommended you to “buy to open” the June 18 Puts for $1.25 or less. If you can still get into it at a price below our recommended maximum, we still like the trade.

Youku (YOKU)On May 1, we recommended you to “buy to open” the May 22 Puts for $0.95 or less. If you can still get into it at a price below our recommended maximum, we still like the trade.

Green Mountain Coffee Roasters (GMCR)On April 27, we recommended you to “buy to open” the June 45 Puts for $3.75 or less. If you can still get into it at a price below our recommended maximum, we still like the trade.

Prudential Financial (PRU)On April 27, we recommended you to “buy to open” the May 62.50 Calls for $0.95 or less. If you can still get into it at a price below our recommended maximum, we still like the trade.

Closed Positions

These are the SlingShot Trader positions we closed during the past week of trading.

Deckers Outdoor (DECK)On April 27, we recommended you “sell to close” the May 60 Puts. We closed the position for $6.00 for a gain of 380.00%.

Bunge Limited (BG)On April 26, we recommended you “sell to close” the May 65 Puts. We closed the position for $1.72 for a loss of 9.95%.

Coinstar (CSTR)On April 27, we recommended you to “sell to close” the May 67.50 Calls. We closed the position for $1.27 for a loss of 32.80%.

Webinar Preview: Join Us Tonight at 6 p.m. ET

Every Wednesday at 6 p.m. ET, we host our live webinar, in which we’ll review this weekly newsletter, discuss coming events in more detail and walk through our Top Trades. We also encourage you to submit your questions live during the session. We want to do everything we can to help you become a successful options trader, which is why you’ll have live access to us for an hour every week.

And if you have any questions or comments you would like to send us in advance of the live session — or anytime during the week — you can write to us at johnandwade@slingshot-trader.com.

If you can’t attend the session live, you can watch the archived version on our website in the “Live Weekly” section. It’ll typically be posted within about two hours of the end of the live session.

Sincerely,

 

John Jagerson and Wade Hansen
Editors
SlingShot Trader