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Posts Tagged ‘SPX’

Inverse Correlation between Jobless Claims and the S&P 500 (SPX, SPY)

December 10, 2009 Leave a comment

The Pragmatic Capitalist blog has posted a chart that shows the high degree of correlation between the inverse of initial jobless claims and the S&P 500:

This is a highly interesting chart, as it shows just how important jobs (or the lack of jobs) have been to the market during this recession.

The correlation here is astonishing; frankly far higher then I would have expected given the recent reaction to jobs reports that the market has basically shrugged off.

I would expect this correlation to continue, as consumer confidence and jobs are the last remaining economic pedestal on which the bears can hang their hat, and if these initial jobless claims can continue their decline, we should see further upside in the market.

– AH

Disclosure: No stocks mentioned, but long the market.

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Follow-Up: Technical Trouble on the S&P 500 (SPY, GS, JPM, AAPL, CSCO, GOOG, F, GE, CAT, GLD, UUP)

December 8, 2009 1 comment

We have posted discussions about this in the past, most recently on November 25th and also on October 30th, where we looked at the charts and decided that the S&P 500 was possibly in for some trouble.  On November 25 the broad market index closed at 1111.18, and today it closed at 1091.94, for a loss of 1.7%.  Basically, the market has gone nowhere in that time.

What has happened, however, is that the chart has given us some more signs that the market is running into trouble.  Here is a 1 yr daily chart of the SPX, similar to the one we showed in our previous posts, except with some updated lines.

As you can see, we still remain unable to break above that 1120 line (yellow horizontal line), which is the long term 50% Fibonacci retracement line from the 2007 high to this years low.  It is likely that we are seeing heavy resistance at this level as traders anticipate this weakness and front run it to exit positions for the year.

Additionally, this chart shows that we have broken the uptrend that was established since the March lows.  Keen observers will note that this also happened in October, but the break is much more definitive this time especially when combined with that price ceiling. However, we will need to take a look at where we close on the weekly chart because that should be much more indicative of future movements.

For good measure, the same analysis applied to the E-Mini futures (/ES) yields similar results:

The /ES is attempting, and thus far failing to break through its own ceiling which has been established at 1112.  As you can see, the E-Mini futures just broke below the upward trendline that has defined this rally since March.

The root cause of this is, in our opinion, fund managers selling off risky assets to lock in the substantial gains some of them have been able to accumulate during this tumultuous year.  Obviously, this situation is not sustainable, as mutual fund managers often have a mandated maximum cash balance, and hedge fund managers generally do not like to have their end-of-year statements to clients say that they are in cash.  But there is a lot of money available to be taken off to the sidelines, so this situation may continue through the end of the year.  It will be important to watch leadership stocks over the next couple weeks such as Goldman Sachs & Co. (GS), JP Morgan Chase (JPM), Apple (AAPL), Cisco, (CSCO), Google, (GOOG), Ford (F), General Electric (GE), Caterpillar (CAT), etc. and of course gold (GLD) and the US Dollar (UUP). We’ll be making a follow up to this over the weekend.

-Lucid Markets Team

Disclosure: Long GS, CSCO, GOOG, GE, GLD, UUP, JPM and the stock market in general through various other positions.

Black Friday Retail Sales – Holiday Season Upside Surprise? (XRT, RTH)

November 25, 2009 1 comment

Crazed shoppers go for black friday gold

With the unofficial unemployment rates approaching 20%, consumer confidence at 60% its normal level, and retail sales showing only slight percentage increases over abysmally low levels, one would be forgiven for having a low amount of confidence in consumer spending juicing the economy this holiday season.  Add to this the declining levels of credit available to consumers, and a generally bad attitude towards taking on more debt as consumers retrench (especially those 25% of mortgage-holders who are underwater in their mortgage), and it looks like we are in for a rough post-thanksgiving period.

But, is it actually going to be that bad?

Last year, despite Thanksgiving weekend finding itself a few weeks after the start of the worst financial crises since the Great Depression, sales actually increased by 7.2%, with the average person spending $372.57.  Over 50% of Americans were out during that weekend (source here) Since then, unemployment has become worse, but consumer confidence as measured by the UoM has increased from 57.9 to 66 (although normal levels are closer to 90).

And of course, there is always the pent-up demand.  Spending this year has been unbelievably low, as exhibited by the repeated 2% declines in retail sales last year followed by scattered and inconsistent recovery.  Eventually, consumers will get frustrated with the lack of new things that they have, and will crave shopping.  The sale prices that will be available on Black Friday could be the trigger consumers need to dig back into their wallets.

Finally, on a personal note, how many times have we heard that some part of the economy is reaching a new paradigm (like we are hearing now).  We heard it during the tech boom of the early 2000s, during the S&L boom of the 1990s, and about the economy during just about every recession.  The most dangerous words I have heard when it comes to investing are: This time it is different. Consumer spending will come back, and I think it will be sooner than people think.

-AH

Disclosure: Long TGT, and am net long the market with other positions.