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May 18, 2023

Stocks Soar on Jobless Claims

Frank Cabibi

Unemployment claims came in less than expected this morning showing healthy signs for the US economy. Stocks have been on a tear since then as the NAS100 is up over 1% and SPX500 up 0.2%. Tech stocks look to be having the strongest day in the market.

EdgeFinder Analysis

JP225 is now a strong buy on the EdgeFinder at +6. The index touched all time highs around the $30,800s before returning some of those gains. This market is at a crucial decision point, and today's price behavior will help determine whether or not it will break to new highs and continue an uptrend, or pullback from profit-taking.

Having that said, sentiment for the Japanese stock market is still strong regardless of COT activity who is net short. However, institutions are slowly changing that by cutting back on short contracts and increasing the number of longs. This has been happening for several weeks but at a slow pace.

I'm showing the Historical Backtest feature instead of a score summary because the SPX500 is in a neutral-to-buy rating. Before this, price had been a strong sell of -6. The fact that the score is shifting this much indicates a possible reversal in EdgeFinder sentiment.

After a better than expected jobs number today, we might be seeing hopeful signs within the US economy. Although inflation did rise higher than expected last week, investors are still hopeful for a rate pause this coming June.

The same thing goes for NAS100 which has been ranked a strong sell back in March. As the score shifts - likely due to the trend readings and May's seasonality - so might the EF sentiment. Tech stocks have seen a massive run higher since March as the NASDAQ leads the US indices in gains.

What we need to look for is a perpetuation of a buy score. The EF can easily flip back to the sell side after a heavy bull run. This has been a key factor in the stock markets overall: after higher highs are established, price corrects to lower lows. But, if price can maintain its positive score, we might see some confirmation of more upside.

Retail Sentiment

According to retail sentiment, most of these indices are bullish. GER30 and JP225 are especially bullish while the US30 and UK100 are more mixed. It seems like the best chances investors will have are with the indices that are majority short from the retail side.

To the point I made earlier, here is a clearer visual on what is happening each between institutions on JP225. The net positive growth in long contracts have increased over time suggesting that COT is becoming increasingly bullish.

Fundamental Spotlight

Upon comparing the unemployment rates between Japan and the US, Japan's economy seems to be in a better position overall. The BOJ was adamant about keeping rates below zero while focusing on economic growth. This dovish tone is what is likely causing JP225 to be more bullish than the rest of the indices.


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