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Will This Correction Morph Into Something Worse?

  • Written by Syndicated Publisher 370 Comments370 Comments Comments
    April 19, 2012

    This week is a quite heavy week for economic reports. They include Retail Sales, the Empire State Business Index, The Phila Fed Mfg Index, Housing Starts, Existing Home Sales, Industrial Production, the Leading Economic Indicators, etc.

    So far they’ve been biased toward the negative.

    Retail sales surprised on the upside, rising 0.8% in March. But the Empire State (NY) Business Index fell sharply, from a reading of 20.2 in March to only 6.6 in April. The Housing Market Index, which measures the optimism of home-builders, declined for the first time in 7 months, dropping from 28 in March to 25 in April (on a scale of 1-100). This morning it was reported thatNew Housing Starts fell an unexpected 5.8% in March, compared to the consensus forecast of a gain of 1.3%. And Industrial Production remained flat in March for the 2nd straight month, versus the consensus forecast that it would be up 0.3%.

    But the most important report will be the usually quite unimportant new Weekly Unemployment Claims on Thursday. The weekly claims usually  are fairly volatile. So the four-week moving average, which smooths out the weekly variations, is usually considered more useful in identifying the trend than the individual weekly number.

    However, the shocking surprise of the Labor Department’s monthly jobs report for March, that only 120,000 jobs were created in March compared to the forecast of 240,000, has moved anything related to the employment picture to the front burner. That’s understandable since it had been the several months of positive monthly surprises in the jobs reports that provided the clearest evidence that the economic recovery was picking up steam.

    It’s still being hoped that March’s jobs report was an aberration. But the surprise jump of 20,000 new unemployment claims last week raised concerns that the jobs slowdown is continuing in April.

    And that is going to make this Thursday’s weekly claims report particularly important. Another big jump would be bad news, while a decline in claims would keep hopes alive that March’s big decline in new jobs, and last week’s big jump in claims were aberrations.

    The Next Short-term Pattern.

    In Saturday’s post I noted how the market had reacted in its usual historical pattern to a surprise in the jobs report.

    And that the typical pattern around options expirations had been working out so far, the week before the expirations week (last week) tending to be down. The other half of that pattern being that the week of the expirations, which this week is, tends to be positive.

    The next short-term pattern regarding April is that the second half of the month is usually weaker than the first half, especially if the options expirations week is positive.

    Will The Short-Term Correction Morph Into Something Worse?

    The market’s short-term sideways action since mid-March gave way to a short-term correction over the last two weeks, foreseen by the short-term technical indicators.

    It has the short-term Relative Strength Index at its short-term oversold zone, supporting the thought that this week will be positive.

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    But is the DJ Transportation Avg., which often leads the market is both directions, warning that the market may be vulnerable to an intermediate-term correction?

    The intermediate-term technical indicators on the Transports (but not the other major indexes) have turned negative, and the Index is potentially close to breaking down through the intermediate-term support at its 20-week m.a.

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    To read my weekend newspaper column ‘More Impetus For A Summer Correction!’ Click here.

    Subscribers to Street Smart Report: In addition to the charts and updates in today’s premium content area of this blog, there is an in-depth ‘Gold, Bonds, Dollar, Inflation’ report in the subscribers’ area of the Street Smart Report website from yesterday, and an in-depth ‘US. Market Signals and Recommendations Report’ will be there tomorrow.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
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