Initial Jobless Claims starting to rise, S&P in for a correction

This week's initial jobless claims were rising again as reported by Zero Hedge and based on the obvious correlation between the S&P and initial jobless claims here, I expect that the S&P will come down eventually.

On top of that, the capacity utilization for the previous month was edging down (blue chart going up), which confirms that the unemployment rate will start going upwards (red chart going up).

 While deflation sets in with a lower CPI (red chart going down).

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Correlation: S&P Revenues Vs. PMI

Dr. Ed Yardeni's blog is a pool full of critical information and one of them is a newly discovered correlation which I will add to my collection.

Apparently the PMI is a leading indicator for the S&P revenues, which also means the PMI is a leading indicator for the overall direction of the stock market. This is consistent with the correlation between the PMI and the GDP, which is correlated to the total stock market index on itself via the Warren Buffet Rule.

So if you want to know the direction of the earnings of the financials, just look at the PMI and you can predict the trend, which is certainly down after the miss in PMI reported the previous week.

Chart 1: S&P 500 Revenues Vs. PMI

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Durable Goods Orders Vs. S&P

This page is created to monitor the Durable Goods Orders Vs. S&P.

The durable goods orders are new orders placed with domestic manufacturers for delivery of factory hard goods.

If we see a plunge in durable goods orders (blue chart), we know for sure that in the months to come we won't see a lot of activity in factories as orders decline. There will be less work and that will reflect itself in the stock market,  in particular the S&P (red chart).

The durable goods orders chart is the less volatile of the two and should be a good indicator for the S&P, which is more volatile.

In recent months we see the durable goods orders flatten out, which means the S&P will likely decline in the coming months.

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Euro Strength Finally Manifested

I have been monitoring the euro versus U.S. bonds versus S&P.

U.S. bonds have been very volatile, one day they go up and the other day they go down. There is no consistency whatsoever in U.S. bonds (green triangles). The euro has been relatively flat against the U.S. dollar, but it posted the biggest increase since I started monitoring it the previous month (blue dots). I hope this will be the first sign of euro strength, which means commodities could start rising. The S&P started to go down lately, but today it was pretty bullish.

There is no decoupling yet: when the U.S. dollar goes down, stocks go up.

Chart 1: Monitoring of EUR/USD VS. 10 Yr US Bonds VS. S&P

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Copper VS. S&P

Let's bring to mind the amazing correlation between the price of copper and the S&P. When copper rises, the S&P rises and vice versa.

Financials will always be vulnerable and could crash like in 2008, bringing down copper. But don't forget Ben Bernanke. I predict he will initiate QE3 when the stock market falls 10%.

Chart 1: Copper VS. S&P

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