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Economic Indicators Leaders or Laggards?

Last Week in the Market

Last Friday’s USA unemployment report showed that only 11,000 jobs were lost in November, and then the US dollar rocketed. First, do you believe the number, and second is it important? One month of economic data does not make a trend. The real trend for USA unemployment for the last year has been up, starting at about 6.5% in October 08 to the 10% it is now. In real terms I would suggest the USA unemployment rate is 15% to 20% and will stay that way for quite some time.

Economic Indicators Leaders or Laggards?

Economic indicators don’t lead the market, they lag them, which is contrarian to many a point of view from amateurs to professionals on Wallstreet . People lead the markets with the beliefs about the markets. They trade their beliefs about the markets whether they are beginner investors, fund managers or pro traders.

Unemployment GDP and the Decoupling Effect Theory

With all that in mind it’s hard for me to see any drivers for stock and commodities prices to continue higher with unemployment as high as it is, and the very real risk of GDP slowdown. I suggest that stocks are headed lower, much lower, and the US Dollar is on a rebound now for at least a year or maybe longer. Also, Asia is still growing, but if there’s a significant downturn in the US market as I predict, the rest of the world including Asia could be included. The decoupling effect is a nice theory, and I’m one to actually want to believe in, but in reality, I have yet to see it yet. In this age of globalization, virus and disease spreads fast and quick so be ready for that possibility so you don’t get killed.

My Stock Pick This Week is the Dow Jones Industrials Index

I think the Dow is at the beginning of a major downturn. In fact a downturn that could take out the March 2009 lows. The S&P500 and the Nasdaq have yet to show similar price action with the suggestion that higher prices are possible near term. We will have to wait and see how this plays out during this week and the end of this month, but the markets are at some critical junctures here to say the least. The markets have been churning and going nowhere for weeks. There’s no leadership to speak of, and investors seem to moving to the highest quality stocks currently. If they already have been that could explain why the S&P500 and Nasdaq have not moved higher recently.

I think we are near the end of this bear market rally that started in October 08, and stocks, precious metals, commodities are headed lower, with the dollar headed higher. Did I mention deflation? No, but I think it’s very possibly coming. The US dollar is headed higher because everyone was shorting it, and gold was the upside recipient of it and now the covering begins it seems.

Last Words

I’m guessing the DOW, S&P500, and the Nasdaq have a Santa Clause rally, and the market possibilty turns down after that. We shall see.

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Click the Dow Jones Industrial Index Chart for a larger view.

Dow Jones Industrials Index Chart
Disclousre: Not short the index's. Yet.

Disclosure: Not Short Yet