Wednesday, May 6, 2009

Sequencing Stocks, Jobs and GDP in a Rebound

Sometimes my ability to overlook the obvious amazes me – and I’m not talking just about my trading.

I should have known I was overlooking something important when several of the recent Abnormal Returns (almost) daily links referenced a blog by the name of Sentiment’s Edge. With Jason Goepfert at SentimenTrader and Brent Leonard at Market Sentiment all over that space, I wondered to myself what need was there for a new entrant in the market sentiment space. As it turns out, Jason Goepfert, who runs the subscription-only SentimenTrader, started a free blog back in January: Sentiment’s Edge. Perhaps it took a sub-35 VIX for me to get my perceptual edge back.

In any event, as a subscriber to SentimenTrader (and I very rarely subscribe to anything), I am delighted to see that Jason is putting more of his thinking out in the public domain. As a rule, VIX and More generally focuses on free content and does not comment on content that is available only via a paid subscription.

If you have never been to Sentiment’s Edge, today is a good day to get a sense of the type of analysis you can expect to find here. In The Economy Vs. the Market, Jason draws upon work from The Pragmatic Capitalist to analyze turning points in stocks, joblessness and GDP. His conclusion? Prior to the dot com crash earlier in the decade, the typical pattern was for stocks to lead, jobless claims to follow and GDP to turn last. Follow the click and the graphics tell the story.

Clearly stocks have made a turn, if not the turn. The trend in initial jobless claims are a little murkier, but if today’s ADP employment numbers are confirmed by tomorrows jobless claims data and perhaps Friday’s employment report, then the old pattern may be returning, with only GDP left to reverse.

Frankly, I probably won’t start to be convinced about an economic turnaround until I see more than a month’s worth of progress on the initial jobless claims data, as well as some evidence that there are improvements in continuing jobless claims as well.

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