Our first bear market signal was issued on 1 September 2015 when the Composite Market Health Index (CMHI) dipped below zero. Since then we had a sustained deterioration of the CMHI components to reinforce the signal, coupled with high stock market volatility. Although market breadth features prominently in the CMHI, there is another way to identify the onset of bear markets for stocks by observing the behavior of the percentage of SP500 stocks trading above their 200-day moving average. In […]
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Risk of U.S Economic Recession
A raft of analysts, perma-bears and bloggers are playing fast and loose with the R-word again. This is likely to reach a crescendo with the release today of the unexpected large drop in the ISM non-manufacturing survey. We recall a time in late 2011 when the mainstream perception was that we were headed for recession and we posted a widely read article that went against the mainstream, and attracted attention of some respected names: Given the amount of attention looming […]
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Yellen Labor Dashboard reaches target
“Full Employment” target reached Shortly after taking up office, Federal Reserve Chair Janet Yellen used her “jobs data dashboard” to justify the Fed’s easy money policies and to argue there’s still considerable slack in the labor market five years after the recession’s end. Seven of the nine gauges on this dashboard had not recovered to levels reached before the last recession, reinforcing her belief that the economy would need “extraordinary support” from the Federal Reserve for “some time to come.” It […]
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Things that go bump in the night
The U.S economy appears unstoppable right now. Just about every leading and co-incident indicator you can think of is pointing to positive growth. Among the hundreds of indicators we follow for our models on a daily basis, we have discovered a few that are displaying worrying trends and flagging a future recession. It should be pointed out that a handful of indicators flagging recession should not mean we have to push the panic button. A large raft of indicators all concurring […]
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SP-500 Returns Forecast, 4Q2014
The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 […]
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Stresses are building up in the system
Despite a steady rise in the SP-500 Index, clear and persistent financial stresses are starting to build up in the system. We construct a composite of the St. Louis Fed Financial Stress Index, the Cleveland Financial Stress Index, the Kansas City Financial Stress Index and the Chicago Fed National Financial Conditions Index as shown below: The average value of the composite, which begins in 1973, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. […]
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Valuation estimate of SP500 2015 returns : 2,246 target
The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 are […]
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Valuations not at nose-bleed levels yet
The recent run in the major U.S stock indices has resulted in Shiller-PE charts being trotted out showing how far we are off the historical mean, implying a nasty pullback is in the works. The problem with a historical mean is that it is a single horizontal value on a chart that fails to take cognisance of any long-term trending the underlying valuation series may be experiencing. The static mean implies there is no valid reason stock market participants would be […]
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“Baby” correction belies verocity of breadth sell-off
The current stock market correction is diminutive in relative terms – hardly anything to sit up and take notice of. However an examination of underlying breadth deterioration reveals an astonishing plunge of the net new quarterly highs (the percentage of new quarterly highs less the percentage of new quarterly lows). This percentage has been languishing below 10 for 6 days now. Below is a historical chart showing periods where this breadth index was below 10% and for how many days […]
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New improvements
We have introduced three new improvements to the web site to enhance the user-experience; 1.Progress Loader Some of our pages, particularly the CHARTS page, can take some time to load due to the amount of historical data we allow you to view in the charts. If web site usage is heavy and/or the internet is very busy, this can sometimes lead to up to 10 second delays (US) or even 20 second delays (Asia) before pages are displayed on your screen. […]
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Liquidity Crunch warning finally materialised
Fifteen trading days after our Average Liquidity Index (ALI) issued a liquidity crunch warning, the SP-500 finally succumbed into a decent sized correction. The two short-term liquidity indexes, one of which is described in “The HI-LO Breadth Indexes for the SP-500” issued warning even sooner, as can be seen below: At a level of -2, we are in a full blown liquidity outflow as can be seen on past occasions. Most up-turns in the ALI at current levels tend to […]
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SP-500 Liquidity Crunch Warning
Losses on the SP-500 on Friday 11th saw all our measures of breadth-liquidity fall into contraction, warning of a highly vulnerable market subject to further liquidity tightness and raised volatility. To many of my staff that actively trade the SP-500, this is treated as a bona fide correction warning. If you are scratching your heads as to where to find this chart updated on a daily basis in our charts menu, we will only be launching it in the coming […]
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Yellen’s Labor Dashboard suggests tightening in 2016
Federal Reserve Chair Janet Yellen recently used her “jobs data dashboard” to justify the Fed’s easy money policies and to argue there’s still considerable slack in the labor market five years after the recession’s end. Seven of the nine gauges on this dashboard have not recovered to levels reached before the last recession, reinforcing her belief that the economy will need “extraordinary support” from the Federal Reserve for “some time to come.” It appears the Federal Reserve has changed emphasis from […]
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U.S future economic outlook improves
The RecessionALERT monthly U.S Leading Growth Index (USMLI) is an index that attempts to capture future (6-9 months) U.S economic growth. The index has been constructed since 1960, but this report only displays data from 2000 onwards to capture the last two recessions. The USMLI consist of 10 sub-components that are in turn constructed from over 100 discreet monthly and weekly leading time-series data that capture the essence of U.S future economic growth from varying aspects, namely Manufacturing , Inventories & […]
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Seasonality approaching its worst point
We have entered the Mid-Term cycle in the Quadrennial Presidential Cycle, in which the months April through to September typically represent the worst SP-500 seasonal period for the entire 4 year cycle. The current cycle which commenced in 2012 has performed way above average so far, as shown below with the black dotted line: However it is plain to see from the chart above that the average gains through the 4-year cycle are composed of cycles that vary quite a […]
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FED in the driving seat
The chart below shows how the FED is firmly in the driving seat for the U.S stock markets through the monthly growth of their balance sheet, primarily through the purchase of U.S Treasuries and Mortgage Backed Securities. You can clearly see why talk of tapering sends shudders down everyone’s spine: It is interesting to note that in the prior economic expansion, the economy and company earnings clearly were in the driving seat – the good old days when good news […]
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Labor Market flags U.S Recession on horizon
Labor data last week surprised to the upside and pointed to an improvement in hiring and by implication the labor market. However, our leading Labor Market Growth Index, which tracks various diversified aspects of the general U.S labor market, experienced a sharp drop for the data representing the end of October 2013, to below the zero growth line. This is typically a signal for recession in 5-9 months time. However, we normally smooth the raw monthly data to cater for […]
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Things could get fun from here…
At last, a decent pullback with a fat red candle on the SP-500. If the premise (see “Seven Paw-prints of the Bear“) is that we are in a well established bull market (we don’t care if its liquidity or economically fueled) then this could become a desperately needed “buy on the dip” opportunity to get aboard the train if were not already on it, or place additional funds into the market. Firstly, the big red candle on the SP-500 has not […]
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Market Update 17/10/13 [PUBLIC]
The political standoff associated with the debt ceiling and government shutdown has made its impact felt the last 3 weeks on the weekly leading data. Two out of the 5 main components of the WLInr are now firmly planted in recession warning territory with some 30% of all underlying 50 weekly time series also camped there: With the government shutdown now over we hope to restore full reporting service next week as the data starts coming through. We had our […]
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Once in a year opportunity
We have spend the better part of a decade in the search for the ultimate indicator for the stock markets. Whilst it became clear early on in this quest that no one indicator would work all the time and every time, there are a few that stand out from the rest. One of them is our HILO Breadth Index which we introduce in this research note. Apart from a multi-decade track record, the HILO index is very adept at warning […]