Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Technical Analysis Points to DOW 30k Next Target - 19th Nov 18
Stock Market Consolidating in a Downtrend  - 19th Nov 18
Next Tory Leader, Prime Minister Forecast and Betting Market Odds - 18th Nov 18
The Fed's Misleading Money Supply Measures - 17th Nov 18
Stock Market Outlook: Why the Economy is Bullish for Stocks Going into 2019 - 17th Nov 18
NO DEAL HARD BrExit Tory Chaos, Theresa May Leadership Challenge - 17th Nov 18
Gold vs Several Key Investments - 17th Nov 18
GDX Gold Mining Stocks Q3 18 Fundamentals - 17th Nov 18
Is Gold Under or Overpriced? - 17th Nov 18
Active Managers are Bearish on Stocks. A Bullish Contrarian Sign - 16th Nov 18
Will The Fed Sacrifice Retirement Portfolio Values For The "Common Good"? - 16th Nov 18
BrExit War - Tory Party About to Replace Theresa May for NO DEAL BrExit - 16th Nov 18
Aspire Global Makes Significant Financial Strides - 16th Nov 18
Gold Oil and Commodities …Back to the Future ? - 16th Nov 18
Will Oil Price Crash Lead to “Contagion” for the U.S. Stock Market? - 15th Nov 18
How NOT to Be Among the MANY Stock Investors Fooled by This Market Myth - 15th Nov 18
Tory BrExit Chaos Cripples UK Economy, Wrecks Housing Market Confidence - 15th Nov 18
Stocks Could End 2018 With A Dramatic Rally - 15th Nov 18
What Could Be the Last Nail in This Stock Bull Markets Coffin - 15th Nov 18
Defensive Stock Sectors Outperforming, Just Like During the Dot-com Bubble - 15th Nov 18
Buying Your First Home? Here’s How to Save Money - 15th Nov 18
US Economy Ten Points or Ten Miles to ‘Bridge Out’? - 14th Nov 18
US Stocks: Whither from Here? - 14th Nov 18
Know exactly when to Enter&Exit trades using this... - 14th Nov 18
Understanding the Benefits of Keeping a Trading Journal - 14th Nov 18
S&P 500 Below 2,800 Again, New Downtrend or Just Correction? - 13th Nov 18
Warning: Precious Metals’ Gold and Silver Prices are about to Collapse! - 13th Nov 18
Why the End of the Longest Crude Oil Bull Market Since 2008? - 13th Nov 18
Stock Market Counter-trend Rally Reaches .618 Retracement - 13th Nov 18
How to Create the Best Website Content and Generate Organic Traffic - 13th Nov 18
Why the Stock Market Will Pullback, Rally, and Roll Into a Bear Market - 13th Nov 18
Stock Markets Around the World are Crashing. What Not to Worry About? - 12th Nov 18
Cyclical Commodities Continue to Weaken, Gold Moves in Relation - 12th Nov 18
Olympus Tough TG-5 Camera Stuck or Dead Pixels, Rubbish Video Auto Focus - 12th Nov 18
5 Things That Precede Gold Price Major Bottoms - 12th Nov 18
Big US Stocks Q3 Fundamentals - 12th Nov 18
How "Free Money" Helped Create Sizzling Housing Market & REIT Gains - 12th Nov 18
One Direction More Likely for Bitcoin Price - 12th Nov 18
The Place of HSE Software in Today's Business - 12th Nov 18

Market Oracle FREE Newsletter

Free Online Trading Session

Stock Market Study: Falling Initial Claims is Medium-long term Bullish for Stocks

Stock-Markets / Stock Markets 2018 May 09, 2018 - 12:18 PM GMT

By: Troy_Bombardia

Stock-Markets

Initial Claims made a new low for this economic expansion in April 2018. This is a medium-long term bullish sign for the stock market. Initial Claims leads the economy, which leads the stock market.


Historically, economic recessions either led to bear markets in equities or “significant corrections”. The following chart shows how Initial Claims is a leading indicator for the stock market.

*Initial Claims always trended upwards before a recession began. But as stock market investors, we are more interested in how this data series leads the stock market.

Bear markets

The S&P 500 made 4 bear markets since 1950. These bear markets began on:

  1. October 12, 2007
  2. March 24, 2000
  3. January 12, 1973
  4. December 2, 1968

October 12, 2007

Initial Claims bottomed on January 28, 2006, more than 1.5 years before the bull market in stocks ended. The stock market and Initial Claims both trended higher during those 1.5 years.

Initial Claims was a leading indicator for the stock market in this case.

March 24, 2000

Initial Claims bottomed on April 15, 2000: 3 weeks AFTER the stock market peaked in this bull market cycle.

But here’s the key point: the S&P 500 almost made a double top on September 1, 2000 (it was 1.4% below its March 24 high). Hence we can use September 1 as the bull market’s high.

Initial Claims deteriorated and trended upwards from March 24 – September 1.

Initial Claims was a coincident indicator for the stock market in this case.

January 12, 1973

Initial Claims bottomed on January 27, 1973: 2 weeks after the stock market topped.

But here’s the key point: 1973 was not supposed to be a bear market. The Medium-Long Term Model initially predicted that this would be a “significant correction” (so we did get the SELL signal in 1972). But as more economic data came along, the model changed this “significant correction” prediction into a “bear market” prediction, which is precisely what happened.

Initial Claims was a coincident indicator for the stock market in this case.

December 2, 1968

Initial Claims bottomed on November 30, 1968, a few days before the stock market topped.

The stock market made a flat top from from December 1968 – May 1969, while Initial Claims made a flat bottom. Then Initial Claims went up while the stock market fell after May 1969.

Initial Claims was a coincident indicator for the stock market in this case.

Significant corrections

Economic recessions lead to bear markets or “significant corrections”, but not all “significant corrections” are caused by economic recessions. We’re looking at the cases in which economic recessions (predicted by rising Initial Claims) led to “significant corrections” in the S&P 500.

July 13, 1990

The stock market peaked on July 13, 1990. Initial Claims bottomed on January 21, 1989: 1.5 years before the stock market topped.

Initial Claims steadily trended higher while the stock market rallied from January 1989 to July 1990.

Initial Claims was a leading indicator for the stock market in this case.

1980

1980 saw 2 “significant corrections” because the stock market made a double-dip recession.

Initial Claims bottomed on November 11, 1978. The stock market rallied while Initial Claims went up from November 1978 – February 1980. Initial Claims was a leading indicator for the stock market in this case.

Conclusion

Initial Claims is a slightly leading indicator for the stock market.

  1. Sometimes Initial Claims will flatten when the stock market makes a flat top. Initial Claims was a coincident indicator in these cases.
  2. Sometimes Initial Claims will rise when the stock market makes 1 final bull market rally. Initial Claims was a leading indicator in these cases.

Initial Claims was never really a lagging indicator for the stock market.

FALLING Initial Claims is a bullish sign for the stock market. It means that the equities bull market isn’t over. No bull market ended when Initial Claims was falling.

Read about the Golden/Death Cross Model with Initial Claims filter that yields an average of 16% per year.

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules