Initial Unemployment Claims Confirm Unfinished Market Rally

In addition to other bullish coincident economic data reported yesterday, initial unemployment claims, which are a leading economic indicator, are especially noteworthy.  They are a good precusor to the popularly-followed payroll, or jobs, report, a coincident economic indicator.

The December data will be reported in 13 trading days on Jan 6, just two days after the usually strongest two-day ending of the Year-end Holiday Season Rallies, which will start Thursday, Dec 22. These are detailed in the table below.

Here’s an important technical indicator that is making new three-week highs, also suggesting the same is coming for the stock market.

Typically astute put-and-call option writers, who determine the stock market’s implied volatility as reflected by the VIX, are fading the stock market’s past five-to-eight days decline.  This is an unusual divergence that is bullish for the stock market over the days and weeks ahead.

Another indicator that is short term bullish for the stock market is the relative strength (ratio) of the stock market compared to gold bullion. Even more bullish for the stock market that the SPX/VIX ratio above, it has just made a higher high that the stock market’s Oct high.

Not-withstanding that gold is probably starting to make a bottom in its very short term (days) and short term (weeks) declines to $1,562.50 – see our working model in the second chart below- this indicator also suggests that the stock market rally since its Aug 9 and Oct 4 intraday lows will extend through the Year-end Holiday Season Rallies.

Gold still likely to make a high-$1,800s test of the Aug-Sep $1,900 highs where we recommending selling, following our early-Dec last year recommendation to sell the equity precious metal index, XAU.

Notice how the chart pattern of an unfinished uptrend #5 (left-most open arrow) in an up-down-up-down-up 12345 has probably morphed into a coming C uptrend in an up-down-up ABC pattern (right-most open arrow with embedded matching solid line arrow), which will probably finish a slightly higher high six-to-seven weeks later.

Here’s a more reliable contrary opinion buy signal for gold:
http://www.marketwatch.com/story/the-gold-bugs-are-throwing-in-the-towel-2011-12-14?link=MW_popular

Again, our work disagrees with Merrill Lynch’s technical analysis, in this case gold, as they keep trend following and expecting too-popular classical chart patterns, with which our multi-indicator work currently disagrees:

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Source: Bob Bronsons