Labor Market Trends & Analysis: Job Data & Economic Insights

Intermarket Analysis Throught Macro and Technical Methods

#43 Frontliner Subscription. The Labor Market

The labor market has very particular characteristics in terms of its measurement:

It has qualitative nuances, such as wages and productivity.
It has quantitative nuances, which are complex to measure.
The elasticities of this production factor as an adjustment variable vary from industry to industry.
It is sensitive information for both individuals and corporations.
There is an overabundance of reports that attempt to measure the same thing with different results.

Because of all this, the collection and methodologies of the data-loading process for sector analysis become a determining factor. In the appendix, a summary of the information sources used here is provided.

Labor Market: Current Situation

Jobless Initial-Continuing Claims: Historical Perspectives.

Since 1973, it has been a necessary condition for a recession that both metrics (Initial and Continuing Claims) are rising.
These metrics are weekly data, which we average over 4 periods to filter out volatility.

This gives us an understanding of the importance of these variables in the past, but it tells us nothing about the current trends.

Jobless Initial-Continuing Claims: Present Trends Since the Inversion of the Yield Curve.

When you see them on the same chart.

The current trend shows an economy with:

Volatility in layoffs without a defined trend.
An inability to resolve pending unemployment insurance claims.
This inability arises precisely when the yield curve inverts.

Of course, this is not sustainable over time, and the unemployment rate will tend to rise.

Some important points:

The data I’m showing has a minimal margin of error. It reflects the weekly claims for unemployment benefits. It’s the accounting of payments made by the state.
It’s the freshest data on the labor market.
There’s no room for human error because everything is digitalized, and what’s recorded are the actual payments made.

Unemployment: Historical Perspective

Again, a necessary condition for a recession is that unemployment is rising. Nothing we didn’t already know.

Unemployment: Present Trend

The current trend is upward. It’s no coincidence that the inversion of the yield curve has modified the previous trend, slowly pushing it higher.

The current trend is upward.

A.D.P. Changes in Employment Since the Inversion of the Yield Curve.

In July 2022, the yield curve inverted:

Changes in job positions have only fallen since then.

Labor Market: A.D.P as a Data Source

ADP (Automatic Data Processing) is a global leader in payroll, HR, and outsourcing solutions. Founded in 1949, it serves over 920,000 businesses with services like payroll processing, benefits, compliance, and data analytics. ADP is also known for its National Employment Report, which tracks U.S. private-sector jobs through data from over 500,000 companies and their payrolls registered in the U.S. Its mission is to simplify and optimize workforce management for companies of all sizes.

Indeed Job Postings.

The same story repeats itself. It’s hard not to see the general pattern and the moment it begins, which is precisely when the yield curve inverts or when that inversion is anticipated.

Labor Market: Indeed as a Data Source

Indeed is one of the largest job platforms in the U.S. It gathers data from thousands of job postings and applications to analyze hiring trends, talent demand, and salary evolution. Through its Hiring Lab, it produces real-time reports on the labor market, using aggregated data to track hiring activity and employment shifts by sector.

Conclusions

If these trends continue, the question is no longer “if” we will have a recession, but “when” we will have a recession.
There is consistency between privately and publicly collected data, despite the different sources of information.
There is consistency with the macro analysis of monetary policy. It’s no coincidence that since July 2022, exactly the month the yield curve inverted, job creation has fallen and unemployment claims have become unresolved.
There is consistency with other labor reports, such as the Non-Farm Payroll, where job creation is only occurring in the public sector.

Setup: Trading in This Ecosystem

Summarizing our hypotheses:

Macro: We’ve discussed it repeatedly here, here, and here. We believe we’re entering an economic slowdown, the depth of which we estimate to be significant.
Intermarket: We analyzed it here, and it’s sending very clear messages.
Macro Narrative Stage: We believe we’re in Stage 3, as discussed here, where we expect increased volatility and an eventual transition to Stage 4 shortly.
We believe the S&P 500 is in a state of extreme vulnerability, self-created by the levels it has reached.

Trading

We saw here that the scenario for shorting homebuilders was favorable, and it’s playing out exceptionally well.
Last week, we discussed here that the scenario is ripe for shorting some tech stocks.

In summary, we analyzed the most exposed cyclical sectors and proposed vehicles, both ETFs and specific stocks, to express the hypothesis.
We’re waiting for further technical confirmations, although several are already in place.

The discretionary sector as a whole technically confirmed the start of a decline this week. For those unfamiliar with technical analysis, the weekly close below the previous low confirms several things.

Take the time to read the volume chart.

A new stage of cycles is forming, both daily and intermediate (ICL/ICH/DCL/DCH).
The price is outside the “equilibrium” zone or what the market considers valuable. Notice that there was no interest until much lower levels (vertical axis).
The rise occurred on decreasing volume. Fewer players are entering the market. This is a divergence and is undoubtedly the most important signal in technical analysis. Buyers are running out.
Finally, the last two volume peaks were sellers. People are watching this, and when it falls, more enter.

The volume profile per period (dotted lines) shows the equilibrium prices for each week. That is, the most liquid price of each week. This is an excellent method for establishing supports and resistances.
There are others, of course, but they come from other technical approaches. Notice that it’s no coincidence that the weekly price ends at the last most liquid price, which is the current equilibrium price.

Extensions-Overextensions: Trading weekly time frame.

Price at the Mean

We’ve said several times that the way to trade Stage 3 is through reversion to the mean. However, with a confirmed bearish signal, we believe we’re entering Stage 4 of the macro narrative. The revolution is triumphing, and a new macro narrative is displacing the dominant one. We’re transitioning from choppy trading to one that’s increasingly trend-driven and momentum-based.

Timing

On the daily timeframe, the movement is 2 standard deviations away from the mean. This is excessive and implies that the move has already happened for the day, and we need to wait for it to settle before entering with the correct timing.

Oscillators

Weekly perfect position.

It illustrates the same point. The daily move has already occurred, and to time this correctly, we need to wait for the trigger to enter the firing zone—the mean value of the price dispersion we saw above.

The Choice of Vehicle

Inverse ETFs (they usually diversify individual risk).
Options (much riskier, individual assets, and provide access to leverage).

Shorting the chosen asset directly.

ProShares: Ultra Short Consumer Discretionary (SCC)

A new zone of interest has formed below the previous one.
The last massive volume peak ended in a doji. Many buyers and sellers entered.
Above this latest value zone, there’s a gap up to the next value zone. This is the path of least resistance.

Volume profile by time period: In this case, weekly. Each dotted red line marks the equilibrium points for each week.
Note 1: The most traded price was at the high.
Note 2: How the price ends at the most liquid or equilibrium price.
The distance between 1 and 2 is an excellent measure for a stop loss.
The trigger is a breakout above 1.

Extensions and Overextensions of Price.

At the weekly mean.
Reversion to the mean on a daily basis.

Oscillators.

Intraday, the move has already started.

Trigger.

With the sector’s confirmation, we’ll wait for a breakout above 1 (the previous equilibrium price that formed the doji in the candle), returning to a trend-based method.

These are our trades. For the thousandth time, this is not a recommendation. It’s our work, which we make public for marketing purposes.

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