Thursday, April 9, 2009

Signs of Stock Market/Economy Recovery?

According to Stock Trader's Almanac, the Dow tends to bottom when Unemployment peaks. Unemployment Rate and the Dow move in a highly correlated inverse direction.

"Unemployment is a lagging indicator that moves inversely with equity prices.

The chart shows the pattern of unemployment, recessions and the real (inflation-adjusted) price of the S&P Composite since 1948.

Note the increasing peaks in unemployment in 1971, 1975 and 1982.

The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms.

The mirror relationship seems to be repeating itself with the current and previous bear markets." Source: See Chart

So, lookout for a sharp reversal in the Unemployment Rate for a clear signal the market is ready to take off. Be cautious with data/information!

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