One of the most important things when investing is to correctly interpret the business cycle. Investors look at leading, lagging, and coincident indicators to interpret where an economy is from a business cycle’s perspective.
Naturally, everyone’s interest is with the leading indicators. Just like with reversal patterns in technical analysis, leading economic indicators allow traders to position in advance, well ahead of the actual turning point in the business cycle.
The business cycle theory argues that periods of economic growth are followed by economic recessions. And so on. Moreover, one of the leading indicators used to pinpoint these turnings is the stock market.
When used in combination with a lagging indicator, like the labor market, the two reflect where an economy is from a business cycle point of view.
Therefore, if the stock market rebound was leading the economic recovery, the labor market turning corner too comes as a confirmation of the real turn in the business cycle.
Dow Jones Technical Picture
Dow Jones price recovery was uneven and sluggish so far. It feels like it builds energy to pop above the 30k level. From a technical point of view, we can argue for an inverse head and shoulders formation in place, albeit the right shoulder takes more time to consolidate than the left one.
As ugly as it is, it points to much higher levels for the Dow Jones. Conservative traders may want to wait for a new all-time high before going for the measured move. On the other hand, aggressive traders may trade at the market to take advantage of the potential squeeze higher. In both cases, 27k invalidates the inversed head and shoulders scenario, while the target is higher than 35k.