After last week’s non-farm payroll report, the attention this week for an event binary option trader shifts to weekly initial jobless claims. The key question is when considering a strategy this week is, can we continue at a historically low and stable path of initial weekly claims?

In addition to be at historic lows on the net number of new claims, we are tracking extremely consistently and at historic level of a lack of deviation or volatility on the number week to week. The 4-week and 12 week moving averages are aligned and both at 242k. The 52-week moving average is 249k. In other words, the moving average for the last 4 weeks is within 3% of the moving average for the last year. The historical data and econometric data heading into this week provides a directional bias in the mid to high 240k’s.

Due to normal economic cycles, we know we will need to break out of this trend at some point. In building and reviewing a 3rd order polynomial model, we do see a return to higher levels eventually on the horizon.

 

 

The directional bias is for continued tracking through the mid 240k’s for the next several weeks. Later in the year, polynomial models trained on prior cycles and data begin to show some correction back up, eventually returning to the 320k’s over the next 36 months. but that action is well beyond our time horizon this week.

Stepping back, we seem to be at a point of relative balance in the labor market. We have what history would consider to be rock bottom lows of initial weekly jobless claims, and we still have non-farm payroll reports producing numbers on the high side of healthy.

Normally, when markets achieve balance, they tend to stay in a consistent pattern for some time, before returning to volatility. This move seems to be following that historical pattern. However, traders in an event binary should be mindful that we do continue to trend marginally lower on the 52-week moving average, so there will be more risk for a number to land to the upside as opposed to the downside of the current range in any given week until we correct slightly back to the longer term moving average.

 

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