How to trade the Jobs Report

Submitted by Stockmaster2 on Fri, 07/06/2012 - 05:03

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The much-anticipated monthly jobs report comes out tomorrow - here's how you should trade the reaction to the reaction of the numbers.

There was a good omen Thursday - ADP said businesses added 176k jobs last month. In spite of that, the survey has often differed from the government report which comes out tomorrow.

Here is how to trade the jobs report, with 2 stocks: LinkedIn (LNKD) and Monster World Wide (MWW)

Economists are expecting 90,000 jobs (a fraction of what was predicted just a few months ago). If the job numbers come in bad, maybe in the range of 60,000 - 80,000, more QE will be expected, and the markets could rally from here, due to the August Fed meeting where Bernanke could decide it's time to add more stimulus. Too many jobs, like 120,000 or so, is good news as well and we could see an rally that will sell-off after the initial exuberance, because stimulus hopes drop. And worst case scenario, we come in right at 90,000 jobs - that's like kissing your sister and no one wants that to happen.

LinkedIn (LNKD):We have a lot to say about LinkedIn. The stock is currently trading at $108, right in the middle of its range between $95 and $115. If the jobs numbers come out at 90,000 or below, we think LNKD drops. It is trading at an absurd valuation right now, and needs to come back to around the $60 level before we'd even consider a long position in the stock. However, if the jobs numbers beat 90,000, the LNKD could stay at these levels for a while longer.

Monster Worldwide (MWW): The stock is down 40% in the last year - ironically, it has stayed afloat this year based on buyout rumors, the latest being a buyout from LinkedIn. LNKD has denied the rumors. Regardless, if the job market ever recovers, MWW could have a renassaince in revenue and EPS. The best play here looks to be MWW, because buyout rumors will keep the share price up even if the job numbers are bad or just barely meet expectations. If the job numbers are a blow-out, MWW could have higher percentage gains that LNKD.

Mastery Bottom Line:

Trading the jobs numbers could be risky, but rewards can be reaped if you properly calculate the EV of the trade. From a technical perspective, both MWW and LNKD are trading in the middle of their ranges, and could break either way depending on the jobs numbers.