Spike in Jobless Claims Could Mark a Market Top

Sell Catalyst

Weekly Initial Jobless Claims spiked higher in the latest check, stopping a recent burst in a medium-term market rally that began at the close of last summer. The rally ignited on GOP momentum that gave investors hope for a more hospitable business and tax environment. The market has gained new energy over recent weeks on decent consumer relative reports and on an important dive in jobless claims below the psychological threshold just developed of 400K. However, as we laid out in recent coverage, the dive was anomalous, due to seasonal factors that have effectively reversed through the latest data-point. Given technical omens overhanging, and restored bricks in the wall of worry, including unemployment and inflation, I think there is a good possibility that we have marked a near-term top for stocks. So, this appears to be a smart time to reduce risk.

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Spike in Jobless Claims Could Mark a Market Top

Weekly Jobless Claims for the week ended January 8 climbed by 35,000 to a stock stymieing 450K mark. Between this week's data and last week's, in which weekly claims reemerged above the psychological 400K level (from 391K), it's become clear that seasonality was behind the dulling of unemployment claims in December, which we outlined in several articles.

Over the last few months, we have paid attention and detailed for you growing market enthusiasm as claims moved toward 450K and then toward 400K. There was a direct, though unscientifically defined here, correlation between the two, at least for short-term trading. We noted then expectations that a solid rally could gain fuel from ongoing improvement in the market's greatest area of concern, unemployment.

However, this week's report sort of kills that hope, or at least stymies it in the short term. The four-week moving average of jobless claims moved up by 5,500, which is a significant increase, to 416,500. The insured unemployment rate, which is supposedly seasonally adjusted, was reported today for a lagged period (January 1), and so is not consistent with the other data noted here. Insured unemployment improved by two-tenths of a point to 3.1%, but look for this rate to rise next week.

We again suggest that just as everything else outside of shopping slows in December, so did layoffs and new filings for unemployment. This post holiday season spurt to 450K though, could also be somewhat reactionary, and lifted by pent-up demand for unemployment checks. So, we may not see claims spike higher, or they could even ease a bit from here, but claims seem likely to hold above the 400K mark in the near-term. Given that the market seems to need claims below 400K for confirmation of labor market improvement, stocks should express some disappointment.

The unemployment rate improved in December, but was highly suspect, given the disappearance of twice as many unemployed Americans than the number of newly employed citizens. Given this fact and a smaller than expected increase in nonfarm payrolls, we saw an implication that many Americans had fallen into despair over the holidays and were not counted as unemployed for whatever reason. We look for the unemployment rate to increase again in January as a result.

According to our Technical Analyst Steven Ferguson, several measures show a market fully exploited, and while he notes this does not signify market crash is imminent (though the Hindenburg Omen implies one could be near), he certainly sees a strong likelihood for at least a rounded top in the near-term. Given the technical environment, and the labor market catalyst defined above in the unemployment data, and with increasing worry about global commodity inflation and its potential to infect other goods, too many signs offer wisdom for risk reduction today. Are you paying attention? We just made a broad market call.



FYI:

The highest insured unemployment rates in the week ending Dec. 25 were in Alaska (7.5 percent), Oregon (5.2), Idaho (5.1), Montana (4.9), Wisconsin (4.8), Pennsylvania (4.7), Puerto Rico (4.6), Nevada (4.5), Illinois (4.4), and Michigan (4.3).

The largest increases in initial claims for the week ending Jan. 1 were in Georgia (+11,997), Michigan (+10,129), Pennsylvania (+9,004), New York (+8,379), and Wisconsin (+7,236), while the largest decreases were in California (-13,694), Florida (-1,867), Nevada (-972), Kansas (-841), and New Mexico (-721).

The day's corporate schedule Intel's EPS report (Nasdaq: INTC), and reports by Charles River Associates (NYSE: CRAI), Commerce Bankshares (Nasdaq: CBSH), Infosys (Nasdaq: INFY), Sealy (NYSE: ZZ), Shaw Communications (NYSE: SJR), Shuffle Master (Nasdaq: SHFL), TeamStaff (Nasdaq: TSTF) and more.

The JP Morgan Health Conference offers presentations by Abiomed (Nasdaq: ABMD), Arena Pharm (Nasdaq: ARNA), Myriad (Nasdaq: MYGN), Clinical Data (Nasdaq: CLDA), Endologix (Nasdaq: ELGX), Affymetrix (Nasdaq: AFFX), Almost Family (Nasdaq: AFAM), Given Imaging (Nasdaq: GIVN), Orthovita (Nasdaq: VITA), BioCryst (Nasdaq: BCRX), Isis (Nasdaq: ISIS), Weight Watchers (NYSE: WTW), Hansen Medical (Nasdaq: HNSN), Parexel (Nasdaq: PRXL), Biodel (Nasdaq: BIOD), Celera (Nasdaq: CRA), eResearch Technology (Nasdaq: ERES), Gentiva (Nasdaq: GTIV), Caliper Life Sciences (Nasdaq: CALP), Stericycle (Nasdaq: SRCL), Team Health (NYSE: TMH), Advisory Board (Nasdaq: ABCO), Anthera (Nasdaq: ANTH), Cepheid (Nasdaq: CPHD), Skilled Healthcare (Nasdaq: SKH), . The XChange Investor Conference produces reports from Urban Outfitters (Nasdaq: URBN) and Caribou Coffee (Nasdaq: CBOU) and others. The Needham Growth Conference offers a slew of presentations, including Financial Engines (Nasdaq: FNGN), Global Telecom (Nasdaq: GTLT), Peerless (Nasdaq: PMFG), Trident Microsystems (Nasdaq: TRID), Trimble Navigation (Nasdaq: TRMB), WebMD (Nasdaq: WBMD), LTX-Credence (Nasdaq: LTXC), Medidata Solutions (Nasdaq: MDSO), Power Integrations (Nasdaq: POWI), Rambus (Nasdaq: RMBS), Spectrum Control (Nasdaq: SPEC), Daktronics (Nasdaq: DAKT), A123 (Nasdaq: AONE), comScore (Nasdaq: SCOR), Ddi (Nasdaq: DDIC), FSI Int'l (Nasdaq: FSII), Skyworks (Nasdaq: SWKS), Quantum (NYSE: QTM), Soundbite (Nasdaq: SDBT), Ultratech (Nasdaq: UTKE), Cray (Nasdaq: CRAY), FEI (Nasdaq: FEIC), Harris and Harris (Nasdaq: TINY) and many others. Hewlett-Packard (NYSE: HPQ) has its Technology Series conference focused on "Changing the Rules of Networking."

Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP).

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