Understanding Double Dip and Unemployment

First of all, the negative divergence is now leading in the SPY, so we should be close to a downside reversal.

Here are some charts and my crude attempt at graphics to show you the relationship

By the way, Briefing.com is an excellent resource, even the free version. Above in the grey areas are recessionary periods. By true definition a recession is two consecutive quarters of negative GDP growth. You can see the obvious effect and correlation between recessions and unemployment. You can also see how bad this recession is and that initial claims are still higher then when we saw a recovery in the Sept 2001 area.

The Labor department uses a 4 week moving average -like we use, to smooth the data and get rid of anomalies. However, as you can see, with this morning's release we are close to crossing back above the 4 week moving average in yellow. Also the period in March when claims started to fall and we saw our March'09 rally kick off, you can see a fairly clear trend moving down. Since March 10th that trend has moved lateral. This is not the same as a stock market consolidation and this is what is fueling the concerns over a double dip, because in the period just before and after March 2010, the government threw everything they could at this recession to end it. The current belief which seems to be a reality, is that was the best we were going to get from the government, we aren't in a position to do even the same and if it didn't work then, how are we to curb this disturbing trend with less resources available to fight it? Note how the Fed has consistently, vaguely referred to extra measures they can take, but they have not laid them out. They are in effect saying we have tools to fix this, but they aren't saying what they are and that is spooking the markets and causing them to wonder if the Fed is doing all it really can do at this point by creating confidence through a bluff.

Continuing Claims, still at historic levels. While technically the recession may have ended, technical labels don't put people back to work.

This is my crude attempt to overlay the S&P-500 over the historical Continuing Claims data. You can see how the market has reacted to the data, pay close attention to it and note the years. Note what has happened when momentum has slowed. This beast is bigger then many realize.