What's going on, everybody?

On this morning's I'd Trade That, I put two energy headlines side by side.

The way the market treated them tells you more about this tape than the jobs report did. By the end, I'll show you the bank trade I set up for about a buck.

Check out the video next or scroll down for the wrap up.

Overnight, France floated a coordinated release of roughly 100 million barrels, half from Europe and half from the U.S. and the rest of the IEA (the group of big oil-consuming nations). Brent closed Thursday near $102 and sat around $99.76 this morning. European diesel futures fell nearly 5.5%.

Diesel isn't a sleepy contract. It's the tightest product in energy right now and the thing Europe fears most going into winter.

At the same time, China suspended all of its fuel exports for October. Not a limit, not a guideline. All of it. That supply is off the water for a month.

So which headline moved the price? The proposal nobody has agreed to, which hasn't moved a single barrel. The confirmed Chinese halt did nothing.

I'm not telling you the market is stupid. A coordinated release would be a bigger number than a one-month Chinese halt, and you can defend that pricing. But notice the asymmetry, because almost everything that moved prices overnight hasn't happened yet.

Once you see it in energy, you'll see it everywhere. The 10-year hit 5.34% yesterday, the highest since 2002, then closed at 5.24%. The two-year dropped nearly 10 basis points, its biggest one-day drop since July.

What changed between the high and the close? Two Fed officials said they could use more time before deciding the next move. No data, no vote, nobody moved a rate.

These are voting members on a split committee, so that's more defensible than oil, okay? Still, markets repriced hard twice in 12 hours on intentions instead of action.

Finding Out About July in October

Payrolls came in at 29,000 against 90,000 expected. The Goldilocks range ran somewhere around 45,000 to 100,000, so this missed it, and unemployment ticked up to 4.2%.

The number you really need is July. Revisions took it from 21,000 to negative 10,000. The economy lost jobs in July, and we're only finding out today.

August came down too, from 162,000 to 133,000. That's 60,000 jobs we thought existed that don't.

The average monthly gain over the prior 12 months sits at 44,000, so this isn't one bad print. That's been the trend for a year while everybody argued about whether the labor market's tight.

Healthcare has carried this report for two years, and it added just 17,000 against a 33,000 average.

Is there good news? Yes. Average hourly earnings rose a tenth of a percent, 3% on the year and slowing, so the inflation in this economy isn't coming from workers.

The October hike is off the table, too. CME FedWatch (the tool that turns futures prices into odds of a Fed move) had it at 64% last week. It's at 18% now, and the odds of a 50-basis-point hike in December evaporated.

Here's the Fed's problem. Factory prices paid came in at 77.9 against 73 expected, eurozone inflation sits at 3.8%, and Brent hovers near $100. That inflation comes from supply: energy, trade restrictions, China halting exports, the Middle East.

You can't raise rates and produce more diesel fuel. The hawks want to tighten into a weakening job market to fight inflation their tools can't touch. That's why I think they lose this argument, even though they're right that prices are a problem.

Six Times the Normal Pace

So who gets a bid? Retail already picked. Individual investors are buying long Treasury funds at six times the normal pace, trying to squeeze the iShares 20+ Year Treasury Bond ETF (TLT).

You're getting paid more to own government debt than at any point in a generation. TLT sits around $77.71, stretched past the third standard deviation (an extreme distance from its average), with the 20-day moving average up at $80.22.

We've seen $4 and $5 squeezes from these extremes before. But CTAs (trend-following funds that trade on rules, not opinions) are max short this thing. If they cover, forced selling turns into forced buying.

Until then, retail's alone in the trade, and that's the problem. The crowd has bought the dip in long bonds plenty of times over the last three years, and it's ended badly more often than you'd like.

It's a real signal with a counter-signal attached, so size accordingly. If you're aggressive, look at the $79 call for October 16. If you'd rather wait, watch for TLT to get back above the 20-day, or buy the 78 and sell the 80 with a tight stop.

Remember, $100 oil can stall this cold. If the market decides inflation outweighs the jobs problem, the long end won't rally no matter what payrolls did.

The Shape Banks Love

That last point is exactly why I like the banks better.

We killed the October hike and crushed the two-year. The 30-year barely moved because long-bond buyers still worry about inflation, deficits and oil, and none of that got better today. When the short end falls harder than the long end, you get a bull steepener.

Banks borrow short and lend long, and the gap between those two rates is their margin. A steepening curve widens that gap.

JPMorgan Chase (JPM) just tapped its 200-day moving average coming out of the third standard deviation. Oversold, oversold. I'm getting on board heading into earnings season.

Here's the trade I set up on air: the Financial Select Sector SPDR Fund (XLF) October 16 53/56 bull call spread (buy the 53 call, sell the 56 call). It costs about $1, or $100 to $105 per spread, with breakeven at $54, only 40 cents away. A move back toward $55.50 would be clean.

Yes, a weak labor market eventually turns into credit losses. People lose jobs and stop paying loans. That's not a next-week problem, and I'm focused on the next two weeks.

Small caps run the same playbook. The Russell 2000 just bounced off its 200-day, and asset managers bought about $3 billion of small cap futures in September off a multiyear low in positioning. Small cap volatility stayed contained the whole way down, which tells you the selling was mechanical.

Watch Direxion Daily Small Cap Bull 3X Shares (TNA) once it clears its 200-day. The October 16 64.50 or 66 calls get you toward the 50-day.

Long bonds, big banks and small caps all represent the same thing. If yields go lower, all three benefit.

I'm live every weekday at 9:20 AM ET on I'd Trade That.

I'd Trade That,

Garrett Baldwin