IGNORE JOBLESS CLAIMS; FOCUS ON THIS EARLY WARNING INSTEAD
To gain an edge, this is what you need to know today.
JOBLESS CLAIMS
Jobless Claims came at 6.648 million vs. 2.8 million consensus.
In general, stock market investors should pay attention to jobless claims. In normal times for the stock market, jobless claims carry heavy weight in our Asset Allocation Model. There are two reasons for stock market investors to pay attention to jobless claims. First it is a leading indicator. Second it is released on a weekly basis; many economic indicators that impact the stock market are released on a monthly basis. Due to coronavirus shutdown, jobless claims numbers are shocking but they are already discounted in the stock market.
Our call in the prior week was also to ignore jobless claims that week because they were already discounted in the stock market. After the really bad jobless claims number was released, the overhang of the potential bad news was lifted from the stock market. Typically when the overhang over the stock market is lifted, the stock market rallies. This is exactly what happened in the prior week.
This week, once again, investors should ignore the shocking jobless claims. This week there is no overhang to lift because the jobless claims are roughly in line with the consensus. Instead investors should consider focusing on this early warning indicator. Let’s explore with the help of two charts.
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THE CHART
- The chart of junk bonds is a day chart giving investors a short term perspective.
- The chart shows the drop in the prices of junk bonds as the coronavirus dislocation spread across the markets.
- The chart shows countertrend rally in high yield bonds.
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EARLY WARNING INDICATOR
The chart is your early warning indicator for four reasons:
- In a recession, junk bonds tend to perform more like stocks.
- In my over 30 years in the markets, I have consistently experienced that credit analysts tend to be more accurate than the stock market analysts.
- There is a high probability that junk bonds will break the support shown on the second chart before the stock market breaks the mother of support zones if coronavirus situation worsens. I have previously written that the mother of support zones has an 80% probability of holding.
- If the junk bonds break above the resistance shown on the second chart, that will be an early indication that the coronavirus situation is getting better.
Semiconductor stocks have been leading indicators for the stock market. For this reason, it is important to watch semiconductor stocks such as AMD (AMD) and Micron (MU). It is also important to watch large-cap technology stocks such as Apple (AAPL) and Microsoft (MSFT).
JOBLESS CLAIMS
Jobless Claims came at 6.648 million vs. 2.8 million consensus.
In general, stock market investors should pay attention to jobless claims. In normal times for the stock market, jobless claims carry heavy weight in our Asset Allocation Model. There are two reasons for stock market investors to pay attention to jobless claims. First it is a leading indicator. Second it is released on a weekly basis; many economic indicators that impact the stock market are released on a monthly basis. Due to coronavirus shutdown, jobless claims numbers are shocking but they are already discounted in the stock market.
Our call in the prior week was also to ignore jobless claims that week because they were already discounted in the stock market. After the really bad jobless claims number was released, the overhang of the potential bad news was lifted from the stock market. Typically when the overhang over the stock market is lifted, the stock market rallies. This is exactly what happened in the prior week.
This week, once again, investors should ignore the shocking jobless claims. This week there is no overhang to lift because the jobless claims are roughly in line with the consensus. Instead investors should consider focusing on this early warning indicator. Let’s explore with the help of two charts.
---------------------------------------------------------
THE CHART
- The chart of junk bonds is a day chart giving investors a short term perspective.
- The chart shows the drop in the prices of junk bonds as the coronavirus dislocation spread across the markets.
- The chart shows countertrend rally in high yield bonds.
-------------------------------------------------------
EARLY WARNING INDICATOR
The chart is your early warning indicator for four reasons:
- In a recession, junk bonds tend to perform more like stocks.
- In my over 30 years in the markets, I have consistently experienced that credit analysts tend to be more accurate than the stock market analysts.
- There is a high probability that junk bonds will break the support shown on the second chart before the stock market breaks the mother of support zones if coronavirus situation worsens. I have previously written that the mother of support zones has an 80% probability of holding.
- If the junk bonds break above the resistance shown on the second chart, that will be an early indication that the coronavirus situation is getting better.
Semiconductor stocks have been leading indicators for the stock market. For this reason, it is important to watch semiconductor stocks such as AMD (AMD) and Micron (MU). It is also important to watch large-cap technology stocks such as Apple (AAPL) and Microsoft (MSFT).