Categories

Investing Observation & Opinion

Tools

  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts


    Obama’s Cuba Gambit Will Fail
    ‘Fed To The Rescue’ — The Plunge Protection Team Makes The Front Page
    Nigeria, Belarus Halt All FX Trading As Central Bank Urges “Don’t Panic”
    Russia Reports It Bought Another 600,000 Ounces Of Gold Taking Its Holdings To New Highs
    LendingClub And Billion-Dollar Valuations Are Just The Beginning For Online Lending
    The Indicator That Makes Alibaba Shares A ‘Screaming Buy’
    The Only Social Media Play I’m Recommending Right Now
    Bitcoin Forecast 2015: Four Powerful Trends Will Deliver A Pivotal Year
    Stock Futures Up: Good Vibrations Continue
    Icahn Gives Taj Mahal Casino $20M To Stay Open
    Wanted More Alibaba? Now’s Your Chance
    Nike Profit Up But Shares Drop On Soft Orders
    Stocks Most Overvalued In 45 Years
    Five Reasons Why The Dow Is Skyrocketing
    Hackers Push Stores To Get Breach Insurance


    The Most Reliable Stock Market Indicator You’ll Ever Find

    Last week, I smashed every investor’s go-to crystal ball — corporate insiders — into a thousand little pieces.

    As it turns out, they can’t predict the market’s next move, particularly downturns, with any more consistency “than the gizzard squeezers could tell the Roman emperors when the Huns would attack,” as Peter Lynch liked to say.

    Apparently, telling you to avoid using such an unreliable indicator wasn’t enough, though.

    As one reader, Tim H., wrote in, “That’s all good and well, Lou, that insiders stink as a leading indicator. But what do you suggest we use instead? Or are you one of those guys that just likes to point out problems without providing any solutions?”

    Ask and ye shall receive, my friend.

    Say Hello To The Most Reliable Leading Indicator: Jobless Claims

    For almost six months now, I’ve been telling you that an uncanny inverse correlation exists between initial jobless claims and stocks.

    As claims go down, stocks go up (and vice versa). And, thankfully, claims have mostly been going down.

    The good news is the passage of time, which often undermines the reliability of any indicator, has only cemented this one’s trustworthiness.

    Take a look:

    Stocks Like Jobs

    What’s more, the correlation has been especially strong most recently.

    Case in point: Jobless claims are down about 10 percent this year. Last week, they hit their lowest level in five years. And, lo and behold, the Standard & Poor’s 500 index is up almost the exact same amount (9.4 percent) over the same period.

    Of course, as I’ve noted before, correlation doesn’t always imply causation. In this case, though, it most certainly does.

    Initial jobless claims applications serve as a proxy for layoffs. And the less companies are laying off employees, the more optimistic they are about their future.

    The data backs me up here, too.

    Since November, applications dropped about 13 percent, pointing to an uptick in labor conditions. And sure enough, since that time, net hiring has picked up to an average of 200,000 jobs per month, compared to about 150,000 per month before November.

    Add it all up, and “improved levels of jobless claims could be the most important economic indicator in the market today,” according Bespoke Investment Group. And I couldn’t agree more.

    The lower jobless claims go, the higher we should expect stocks to rise.

    Of course, at some point, claims won’t be able to go much lower. After all, a certain level of jobless claims applications is to be expected, even in a robust economy.

    But don’t fret about that just yet. Based on history, the bottom rests at about 300,000 claims — or about 10 percent below current levels.

    How Low Can Claims Go?

    Bottom line: I challenge you to find a more reliable stock market indicator during this bull market than initial jobless claims. So track it.

    Bespoke publishes an update to this indicator periodically on its website, BespokeInvest.com. But it’s just as easy for us to do it on our own.

    All we need to do is dump the data into a spreadsheet and chart it. You can find the historical jobless claims data here. (Be sure to use the seasonally adjusted numbers.) And you can find the historical price information for the S&P 500 on any major financial website, including Yahoo! Finance, here.

    How does that solution work for you, Timmy boy?

    Ahead of the tape,

    — Louis Basenese

    Louis Basenese Co-Founder, Chief Investment Strategist for Wall Street Daily. A former Wall Street consultant and analyst, Louis helped direct over $1 billion in institutional capital before founding Wall Street Daily where he serves as Chief Investment Strategist. In addition to being an expert on technology and small-cap stocks, Louis is also well versed in special situations, including Mergers & Acquisitions and spinoffs.

    | All posts from Louis Basenese

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    Bubble 2.0? Craziest IPO Market Since 2000
    BlackBerry Reports Adjusted Profit, But Revenue Disappoints
    Stock Futures Climb After Two-day Rally
    Oil Rallies To $60, Heads For 4th Weekly Fall On Glut
    Alstom Shareholders Back 12.35 Billion Euro Sale Of Power Arm To GE
    Rouble Gains As Officials Step Up Verbal Support
    Thai Union Frozen To Buy U.S. Tuna Firm Bumble Bee For $1.5 Billion
    European Stocks Set For Biggest Weekly Gain Of 2014
    U.S. To Sell Final $1.25 Billion Shares Of Ally Financial From Bailout
    American Apparel Approached For Possible Buyout
    Is Waterboarding Torture?
    Most Americans Support Religious Holiday Displays
    InfoPorn: The Many Phases Of Silver (Part 1)
    Just 3 Energy Charts
    Crude Prices Pump-And-Dump After Saudi “Temporary Problem” Comments
    The Stuff Is Already Hitting The Fan In The Currency Markets
    This Is What Gold Does In A Currency Crisis
    Yahoo Stock News: Mobile Growth A Good Sign, But Not Enough For Long Term
    RAD Stock Surges In Tandem With Stock Market Futures
    Gold Price Forecast 2015 Driven By These Two Key Factors 
    Energy News Today Focused On Tense U.S.-China Solar Dispute
    Treasury Yields Build On Largest Gain In Three Months
    Oil Vies For Third Straight Day Of Gains
    Top 15 Trends For 2015
    Why Mutual Fund Managers Rarely Have A ‘Hot Hand’
    Fed Signals Possible Rate Hike In Months
    U.S. Firms Stand To Gain From Cuba Ties
    U.S. To Let Telecoms Set Up Shop In Cuba
    How To Profit From Obama’s Cuban Hug
    Russia To Sell Foreign Currencies To Support Ruble
    Read more from Investing...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sources


    close[X]

    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.