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Economic Indicators – Conditions Neutral, Trends Positive

June 17, 2013 at 9:27 pm No comments

Economic Indicators Roundup (June 17, 2013)

Economic indicators are everywhere, so this is kind of like a dashboard that I like to follow.  For each indicator, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For the economic indicators, I will denote in each one’s section how I decide which rating to give it.  At the end, I assign an overall rating, but this is just to guide me in my takeaway of where things stand.  It’s not scientifically rigorous or anything.

  • Positive - indicative of a healthy, growing economy.
  • Neutral - indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative - indicative of a shrinking economy or recession.

(NOTE: For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end.  You can review any charts/graphs afterward.  I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …)

Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change)
ADS Business Conditions Index Neutral
Bloomberg Financial Conditions Index Positive
Daily Consumer Leading Indicators Negative
Citigroup Economic Surprise Index Neutral
Employment Trends Index Neutral
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Neutral
Easy Trends Dashboard +2.33 = Clearly in good direction with a few off-trend or unconfirmed readings

NOTE: You may be reading an outdated analysis.  Please visit my latest economic indicators roundup.


Economic Indicator: ADS Business Conditions Index   |   NEUTRAL
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: June 8, 2013

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with high confidence, that at the end of March 2013 (most recent date for which there is data for all components of the index), conditions were worse than average (-0.311).  As of about a week and a half ago, it suggested, with low confidence, that current conditions were slightly below average (-0.177), historically speaking.  The index suggests that economic activity has remained below average since mid-March.
Economic Indicators - ADS Business Conditions Index June 8 2013

Source: PhiladelphiaFed.org

Easy Description: Combines several indicators together to describe current business conditions.  A value above zero means that conditions are better than average, but below zero means worse than average.

Latest Readings:

June 8, 2013: Negative (-) 0.177 (includes weekly unemployment figures and maybe one other indicator)

One week prior: Negative (-) 0.206
One month prior: Negative (-) 0.375
One quarter prior: Negative (-) 0.080

The most recent date for which there is data for all components of the index is end of March 2013, when conditions were worse than average (-0.311).

Implications: After the wild roller coaster ride from late November 2012 (peak) to mid-January 2013 (valley), which was most likely a side-effect of the personal income being affected artificially by companies pulling their dividends ahead to give people beneficial tax treatment, we’ve generally seen below average conditions.

Preliminary data from April onward suggest that conditions have remained below average.  But as more data begin to come in, the assessment may change.  That’s why it’s important not to put too much stock into data to the right of the first vertical line, and even less importance on data to the right of the second line.

Additional Info: This index provides confident readings about the past when all of the indicators have been collected (everything to the left of the left-most vertical line).  The readings in between the two vertical lines are somewhat less confident because they include some, but not all, of the indicators.  And the latest reading always falls to the right of the right-most vertical line and includes only a couple of indicators.

Easynomics Rating Methodology: For this index, I will use the very latest reading and rate anything between zero and minus (-) 1.00 as “neutral” – anything above or below that will be rated “positive” or “negative” respectively.

continue reading…

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Stock Market Forecast for Week of June 17, 2013

June 16, 2013 at 9:38 pm No comments

Stock Market Forecast Update

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EASY NOTE: I offer email newsletters documenting portfolio simulations that apply a concept with solid backtesting and intuitively sound principles.  Click here to learn more about the newsletters or sign up to receive them.  If they’re not outperforming the S&P 500 … they’re free!

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I have updated my Stock Market Forecast page with the latest systems I’m testing.  You can read the explanation there in detail.  The quick summary is that I’m doing two primary models (4-week and 13-week), both using a linear regression model (a statistical way of finding a straight-line relationship between a set of variables and a calculated outcome) that involves four different technical analysis data points.

I graph the stock market forecast for each model over the coming 4-week or 13-week period.

Lastly, I will issue two weighted combination forecasts each week in my update post, each of which makes only one “official” forecast for the record book.  One represents a weighted average between where the two models think the S&P 500 will close this upcoming week.  The weights are based on how sure each model is – that is, using the “standard error” for the regression analysis.  The other is a “Headline Adjusted” model, which tries to account for the fact that extreme and unforeseen events can throw off the models.  So, I remove data that seems affected by such effects and keep the more pure data.  But this model will also make only one forecast, one week in advance.

Performance of Last Week’s Forecast

Weekly Direction of the S&P 500

Correct:   13-week   /   Weight-Adjusted Combo

Incorrect:   4-week   /   Headline-Adjusted

 

Accuracy of the Weight-Adjusted Combination Models

Regular Weight-Adjusted Combination: 3.36 percent too pessimistic

Headline-Adjusted Combination: 3.04 percent too optimistic

 

Accuracy of Individual Models

4-week Model:  1.35 percent too optimistic

Correct Prediction of S&P 500 Direction thru Last Week’s Close:  2 out of 4 predictions

Notes: All four times it made a forecast, it was too optimistic (by 1.2 to 1.4 percent).  It got the direction from that point through the forecast date correct only on its first two attempts.

 

13-week Model:  4.56 percent too pessimistic

Correct Prediction of S&P 500 Direction thru Last Week’s Close:  5 out of 13 predictions

Notes: The model started out about 6.7 percent too pessimistic but improved gradually over time, although it never got anywhere close to the right answer.  It got the direction right only on its final 5 attempts.

 

Estimated Effect of Headlines on Current Market Value

NOTE: This is based on a calculation I do after running the current week’s headline-adjusted forecasts.

4-week Model: Negative effect of  2.4 percent   (down 2.1 percent from last week)

13-week Model: Positive effect of 5.3 percent   (down 2.7 percent from last week)

Notes: The headline effect went down an average of about 2.4 percent from last week, so headlines are artificially elevating the market by about 1.5 percent (equally-weighted average of the two models).  Note: This may not be the same as the difference between the “weighted combo” and “headline-adjusted” forecasts because those forecasts are weighted according to the accuracy of each model.

 

Buy-Sell Simulation

The simulated weekly trade using the weighted average of the two primary models can be found on the “Buy-Sell Simulation” tab of the spreadsheet

Weekly Profit/Loss vs S&P 500 buy-and-hold:  Gain of $208

Cumulative Profit/Loss vs S&P 500 buy-and-hold:  Loss of $2,543 (initial $10,000 investment, excluding costs of trading)

Wins and Losses vs S&P 500 buy-and-hold (Win = $50 gain or more, Loss = $50 loss or worse, Tie = Anything in between): 40 pct

Notes: The model incorrectly sold for the week.  The system’s current streak stands at 1 win (any weeks classified as a tie aren’t considered in streak).

 

Stock Market Forecast Summary for Upcoming Week

Here’s the breakdown:

continue reading…

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Stock Market Technical Analysis – A Down Weak but Outlook Still Bullish

June 15, 2013 at 4:50 pm No comments

Stock Market Technical Analysis – Tech It Easy (thru June 14, 2013)

Stock market technical analysis is all you need to know, complete hogwash or somewhere in between.  It depends on who you ask.  If you find it interesting, you’ll probably like reading this weekly feature.

NOTE: You may be reading an outdated article.  Please visit my latest stock market technical analysis summary of the S&P 500 for more.

This is my standard intro to stock market technical analysis – you can skip down to the table (or click “continue reading”) if you read this feature regularly:

Many people who trade in the markets believe that there are patterns that can generally lead to profitable trades.  By analyzing stock charts that show the change in price along with the volume (how many shares were traded), “technical analysts” believe they have an edge and can time their trades profitably.  There is significant controversy over this subject, however.  Others say that, unless you have some information that no one else does, basically you can never beat “the market” because everything is already baked into the current price of a stock.

Nevertheless, supporters of stock market technical analysis are everywhere, and the tools for their trade can be found throughout bookstores and the Internet.  I like to follow some websites that do some of the work automatically and provide a snapshot opinion of whether a particular stock is considered “bullish” (going to go up in price), “bearish” (going to go down in price) or “neutral” (stay about the same price).

For simplicity, I’d like to start by showing you a snapshot of what several stock market technical analysis websites suggest about the exchange traded fund (ETF) with the ticker symbol of SPY.  This fund is supposed to go up and down the same as the S&P 500 index does.  And many people consider the S&P 500 index (a measure of the price of the 500 largest companies that trade in the U.S.) to be an accurate gauge of where “the market” stands.

For each of the sources below, where I have a choice, I will use a measure that attempts to predict the future direction of SPY or S&P 500 in the next 3 months.

S&P 500 Technical Analysis Summary

Source: Barchart.com   |   BULLISH

Quick ‘n Easy

Barchart.com uses three analyses to predict the direction of SPY over the next three months or so.  Looking at the average value and strength of these three signals, we can conclude that BarChart.com thinks that SPY is positioned to rise over the next three months.
Stock Market Technical Analysis - Barchart SPY Long Term Opinion June 14 2013

Source: BarChart.com

Easy Notes: BarChart.com says that SPY is positioned to rise over the next three months.  This is the 21st consecutive bullish assessment after 11 consecutive weeks at a non-bullish rating.  Two of the three signals are at “buy,” and neither of them are weak signals.  More good news is that two of three signals are headed in the right direction (the right direction would mean “buy” signals are strengthening and “sell” signals are weakening).  Overall, this is a bullish assessment.

continue reading…

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Industrial Production – Rising Trend Probably Ended in March

June 14, 2013 at 8:52 pm No comments

Industrial Production – Easy Trends (thru May 2013)

Let’s talk about industrial production, its importance and the current trends.  I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest industrial production trend analysis for more info.

Quick ‘n Easy

Industrial Production (IP) measures how much is being produced by factories, mines and utilities.  The changes in IP track very closely with changes in the overall economy.

First, a nice summary of what Industrial Production (IP) is from Econoday:

The index of industrial production shows how much factories, mines and utilities are producing.  The manufacturing sector accounts for less than 20 percent of the economy, but most of its cyclical variation.  Consequently, this report has a big influence on market behavior.  In any given month, one can see whether capital goods or consumer goods are growing more rapidly.  Are manufacturers still producing construction supplies and other materials?  This detailed report shows which sectors of the economy are growing and which are not.

Easy Translation: The first sentence is probably enough for an understanding – what’s being produced at factories, mines and utilities.  The second sentence is a key detail though.  Because it relates to manufacturing, and manufacturing is only about 20 percent of our economy, at first glance one might consider this indicator not important.  But the changes in the manufacturing sector track the changes in the economy extremely well.  In other words, the cycles of the two are well matched, making IP incredibly important to track.

Here’s a ten-year chart of the Industrial Production Index from the Federal Reserve Bank of St. Louis (a level of “100″ represents the level in 2007):

Industrial Production Index - May 2013 - FRED

Source: StLouisFed.org

Industrial Production Trends and Projections

Below, I will discuss whether industrial production is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. continue reading…

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Unemployment Claims – Low and Just Broke a Rising Trend

June 14, 2013 at 8:31 pm No comments

Initial Weekly Unemployment Claims (4-Week Moving Average) thru Week Ending June 8, 2013 – Easy Trends

In this article, I’ll do an “Easy Trends” analysis of the initial weekly unemployment claims data.  ”Easy Trends” is a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

NOTE: You may be reading an outdated analysis.  Please visit my latest unemployment claims trend analysis for more info.

Quick ‘n Easy

By tracking the number of people who are filing for unemployment benefits for the first time each week, we get a quick insight into the latest status of the economy’s health.  Fewer claims equals more jobs, which equals more income, which usually equals more consumer spending (70% of the economy!) that supports company profits, which in turn can lead to more hiring.

First, a nice summary about Initial Weekly Unemployment Claims and why they matter, from Econoday: (note: “jobless claims” are the same as unemployment claims)

Jobless claims are an easy way to gauge the strength of the job market.  The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy.  Nearly every job comes with an income that gives a household spending power.  Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.

Here’s a chart showing the last ten years of the four-week moving average for weekly jobless claims from the Federal Reserve Bank of St. Louis: (may be one week old due to publishing lag from St. Louis Fed, usually if it’s still early Thursday morning)

Unemployment Claims - Initial Weekly Unemployment Claims 4-Week Moving Average Week Ending June 8 2013 - FRED

Source: StLouisFed.org

Unemployment Claims Trends and Projections

Below, I will discuss whether unemployment claims data is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. continue reading…

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Leading Indicators vs September 2013 – Easynomics Court

June 12, 2013 at 1:00 am No comments

Leading Indicators vs September 2013 – Easynomics Court

For an explanation on “Easynomics Court” and how it works, read this page on leading indicators vs six months into the future.

NOTE: In case you are accessing this post long after it was originally posted, you may also be interested in the most recent Easynomics Court case.

As of today, the official Easynomics Court conviction record for categorizing the growth level six months into the future is:

  • 5 – Guilty (Win)
  • 6 – Not Guilty (Loss)
  • Conviction Rate = 45 percent

Leading Indicators from March 2013

Charges Filed: “The Leading Indicators hereby charge that September 2013 shall be a NEUTRAL month, as indicated by a positive annualized growth rate but below the historical average of 3.3 percent.”

Exhibit A – e-Forecasting Leading Economic Indicator (eLEI) | NEUTRAL

In the six months leading up to March 2013, the e-Forecasting eLEI rose at an annualized rate of about 1.3 percent.  This is consistent with an economy that is growing but at a slower-than-average rate, historically speaking.

Easy Description: e-Forecasting.com has many useful tools for tracking the economy.  Their Leading Economic Indicator (eLEI) is a proprietary model to predict the direction of the economy several months in advance.  The concept is similar to The Conference Board’s LEI does.  Many people believe this is a good leading indicator for the economy, and there is some very good work that validates that.

Easynomics Rating Methodology: I will calculate the change in the eLEI over the six months leading up to the month the “charges” are being filed.  I will convert that change into an annualized rate.  If the annualized rate is less than zero, I will issue a “negative” rating – 3.3 percent or higher will be “positive” – anything in between will be “neutral.”  NOTE: I will use the first available data for the month where possible – i.e., I won’t use revised data – this way, I’m simulating what the leading indicators really believe at the time they are released.

continue reading…

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