The unprecedented world wide Coronavirus pandemic has put the markets on edge and set expectations really low for virtually all financial data points. Considering this, Non Farm Payrolls came in very strong, or at least not as bad as expected. Stocks reacted accordingly, and this tutorial is about how stocks react to strong numbers. This occurs in three phases, discussed below.
Phase 1: Initial reaction
In the event of a number that the markets perceive as ‘strong’, stocks will rally accordingly. This usually continues until they hit a Fibonacci level or other technical level, or traders take profits.
Phase 2: Retracement/Squeeze
The rally discussed above usually will continue to around 9:00am or so. Don’t forget that NFP comes out at 8:30am which is before the North American open. At this point, futures traders have taken profit, and stock traders are gearing up for the open. Watch the Kovach OBV to make sure that this retracement is not a reversal!
Phase 3: Continuation at open
At 9:30am, the US markets open, and stock traders clamour into trades pushing the markets up again. Stocks could retrace later on in the day, or set the stage for strong growth in the subsequent week.
Hopefully this tutorial can help you set up for some good trades if you see this behavior! If you want to learn more, check us out at Ghostsquawk!
Understanding these three phases is crucial to your success in trading this event. Optimally, trading NFP presents two opportunities for profit, with the initial wave, and the second phase at open. If you didn’t catch the initial move, catch the dip for the second wave. Remember to watch the Kovach Indicators to make sure that the trend is still in play. Also, listen to our live streams as we follow this in real time.