If you want to know why you don’t follow the crowd when they have a knee-jerk reaction to economic news, this is why. At 11:00 am this morning all hope was lost for the market…we were deep in the red. Surely all this joblessness meant the end of the world was right around the corner.

I guess all those unemployed people had job interviews and got hired over the following four hours…the market closed in the black for the day. Ridiculous journalism. To assign a cause/effect relationship llke this is far from the whole story.

Anyway, take a look at the Yahoo! Finance home page, have a laugh, then keep reading.

I’m not saying it’s bullish or bearish. I’m just saying this is evidence that you can’t worry about the media - they don’t know or care what they’re doing, and they only think/write/live in the moment.

As I’ve said hundreds of times in the last several months, economic data is long-term data, and should be used accordingly. Using it to make short-term decisions makes you a volatility trader. That’s fine, as long as you understand that today’s counter-intuitive upside reversal is the norm.

You should use short-term charts to make short-term trades; fundamentals don’t play a role there. Use fundamentals and economic data to make long-term trades, and don’t let the short-term volatility shake you out. The only thing the short-term stuff is good for to long-termers is getting in or out at a slightly better price.

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I’m not saying it’s a good thing. In fact, I think it’s a bad thing…. more people are out of a job than we’ve seen in five years. However, I also have to say too many people are jumping to conclusions about what this unemployment data means for the stock market. Here’s the truth…

Yes, it’s disgusting to see an unemployment rate of 6.1%. However, it’s a lagging economic indicator. As such, it may not have a lot of impact on what happens to stocks in the near and distant future.

You may not remember it, but I do, since I’ve long been an anti-fan of the typical media coverage of the economy and the market. The last time we saw rising unemployment this high was in May of 2003. By June of 2003 it peaked at 6.3%. I distinctly remember the media going ape-*$%#, certain that this terrible news would completely undo the market’s 15% gain over the previous four months. Twelve months later, the market had gained another 17%…and never even came close to revisiting those levels from (or before) June of 2003.

Take a look at the chart, then keep reading.

The part that was most amazing to me about 2003 was how the gloom and doom was being preached despite the market’s official end to the bear market a few months before then. Anyway…

Folks, economic data is history. Stocks trade based on where people think they’ll be valued in the future. I’m not saying the two aren’t related; I’m just saying they’re not synchronized enough to react the way the market reacted today. I’m sure all the investors who didn’t buy in July of 2003 because of the jobs data are regretting it now.

Fast forward to today. 

Is this scenario any different than 2003’s? Sure, though I don’t know if it’s any worse or better. Either way, I do know eventually unemployment will start to fall. If history is any guide, that’ll be sooner than later. The time to wade into the stock market is before that happens though, ’cause once it becomes clear unemployment is shrinking, the buyers go hog-wild.

Don’t interpret this bullishly or bearishly; I’m just giving you some food for thought. On the other hand, I’m personally starting to look for long-term holdings since I think we’re near the end of the bear market…all this bad news is priced into stocks. The key to it all, however, will be the point where unemployment can’t go any higher, and starts to point lower insetad. Like I said, I think we’re very close.

By the way, if the unemployment piece of the chart becomes a pointy spike next month (an upside-down “V” shape), just know that’s been the classic reversal pattern for that data set.

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