Browsing Posts published in February, 2012

Taking a Few Days Off

Comments off

Just a quick note to let my regular readers know that I’ll be on hiatus for a couple of days.  I’ll probably return to posting on Thursday or Friday.  I absolutely love doing this blog, but sometimes it has to take a backseat to life and the “other” job that pays the bills … but I still plan to continue posting pretty much every day.

When I return, I’ll have a few updates to get to, including but not limited to:

  • New Homes Inventory Months of Supply – Easy Trends update
  • Weekly Jobless Claims – Easy Trends update
  • Fair value price for S&P 500 for end of February 2012
  • Durable Goods Orders – Easy Trends

Thanks for your patience!

Share

Economic Indicator Roundup

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 …

This is a dashboard of economic indicators that I like to follow.  For each, 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 each indicator, I will denote in its 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.

 


Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change)
ADS Business Conditions Index Positive
Bloomberg Financial Conditions Index Neutral
Daily Consumer Leading Indicators Neutral
Citigroup Economic Surprise Index Positive
USA Today / IHS Global Insight Economic Outlook Index Neutral
Employment Trends Index Neutral
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive

 



Indicator: ADS Business Conditions Index   |   POSITIVE
Easy Intro to ADS Business Conditions Index   |   Link to Source   |   Latest Date This Info Represents: Feb 18, 2012

Quick ‘n Easy

A combination of several key indicators of business conditions suggests, with low confidence, that current conditions are above average, historically speaking.  It suggests that, except for a brief dip in the middle of the fourth quarter in 2011, the levels have been mostly above average since early October.  The most recent date for which all the readings leading up to it were highly confident is around Sep 11, when conditions were slightly below average (-0.171).

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 Reading: +0.126 for Feb 18, but this only includes the weekly unemployment figures and maybe one other indicator.  This level is barely worse than the revised number for a week ago (+0.138).  Conditions look like they hit a low point just barely below zero in the middle of the 4th quarter (around Nov 12) but have improved considerably since then.  It now appears this index has been above average since the beginning of the fourth quarter except for a brief dip in mid-November.

The index value corresponding to Sep 11, 2011, is the most recent one for which all the readings leading up to it were highly confident (see “Additional Info” below about varying degrees of confidence on the chart).  According to the ADS Business Conditions Index, we can confidently say that on that date, business conditions were slightly below average (-0.171).

Implications: Recent data has strengthened this index, indicating that general business conditions are looking very healthy right now.  The fourth quarter of 2011 started with slightly above average business conditions but dipped briefly below average (zero) – but not much below average.  The index hit a low point around Nov 12.  Since then, the index has mostly been well above the historical average.

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…

Share

Technical Analysis Summary of S&P 500

This is my standard intro to 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 “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 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. continue reading…

Share

Per the rules for the hypothetical “Modified Ivy Portfolio”, here is the transaction that I added to my portfolio:

- On the close of Thu Feb 23, the price of EEM was so far above the 10-month closing average (assuming that was the last day of the month) that it would almost certainly not be a “sell” by the end of the month.  There were only 4 trading days left in the month at that point, and there were no 4-day periods out of the last 30 such periods where the price of EEM dropped more than the cushion that EEM had earned at the close of Feb 23.

- My rules dictate that I continue exiting the EEM position, in this case meaning to “buy to cover” because it was a short position.

- Ideally, I would reduce the position by 1/4th each day until the end of the month.  But to minimize commissions, I buy 5 days’ worth at a time.  There are only 4 days left, so I exited the remainder of the position.  Thus, I did a “buy to cover” of 65 shares of EEM at 5 minutes after markets opened on Feb 24.

All of this is accurately reflected in my current portfolio now.

Share

ECRI Weekly Leading Index (WLI) and Weekly Leading Index Growth Rate

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.

Quick ‘n Easy

The ECRI Weekly Leading Index is a weekly indicator that is designed to tell us how the economy will look 2-3 quarters (6-9 months) down the road.  There are two parts to the index: 1) the weekly level and 2) the annualized rate of growth (or decline) in this index.

The Economic Cycle Research Institute (ECRI) does something very similar to the Leading Economic Index from The Conference Board, but they are not at all transparent about how they do their calculations.  We can only wait to see what they publish as their index level and see where it leaves us.  But many people believe this is a good leading indicator for the economy.

Specifically, investors look at two components of the indicator:

  • Weekly Leading Index (WLI)  - This is the actual value of the index released each week.  It will change more rapidly than the growth rate measure mentioned below.
  • Weekly Leading Index Growth Rate – It is unclear how ECRI calculates this, but it is supposed to represent the rate of growth/decline of the WLI over a longer period of time, expressed as an annualized rate (i.e., how much it would rise/drop if it continued at that rate for a full year).
There are numerous other indicators that the ECRI uses to assess the future of the economy.  They have a paid client base for whom they reserve their most up-to-date forecasts, but the WLI is publicly available data that can provide some hints at the overall picture they are assessing.

Here are graphs of the WLI and WLI growth rate for the past year from ECRI:

Source: BusinessCycle.com

Trends and Projections

Below, I will discuss whether the indicator 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…

Share

Initial Weekly Unemployment Claims (4-Week Moving Average)

(Note: This is a milestone post for me … 300!)

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.

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:

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 of the four-week moving average for weekly jobless claims from Calculated Risk:

Courtesy: CalculatedRiskBlog.com

Trends and Projections

Below, I will discuss whether the indicator 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…

Share