Leading Economic Indicators: Finally in Sync With The Stock Market?

Leading Economic Indicators

In the intermediate charts, the Baltic dry index is showing signs of life. The trend is now neutral with a strong bias towards turning positive. The current pattern indicates that the index is gearing up for a move to the 3700 to 3900 ranges with a possible overshoot to 4500. If it can close above 1950 on a monthly basis, then a test of the 2900 ranges is virtually guaranteed. In the long term timelines, the index is still trying to break out and to achieve this; it either needs to close above 3000 on a quarterly basis or above 4200 on a monthly basis. If this is achieved then the long term outlook will turn bullish. Copper is also in the midst of issuing a new bullish signal.

Copper

The next bullish MACD crossover is most likely going to lead to a very strong breakout. If the current pattern strengthens or remains unchanged, then copper should be trading north of 4.20 within the next 9-12 months and possibly as high as 5.10.

These two leading economic indicators were dead for a long time, but they are now issuing bullish signals, and this indicates that our original upside targets of 30K might be too conservative. However, before we start issuing higher targets, let’s see how the Dow reacts when it gets to 29K.

Leading Economic Indicators indicating all is not well according to Bloomberg

The Baltic Dry Index could be used as a “Predictor of Global Stock Returns, Commodity Returns, and Global Economic Activity,” to quote the title of one 2011 academic paper. Google searches for the term rose roughly 50-fold from late 2006 to their peak in February 2009. In one highly influential paper published a month before crude oil hit its peak in July 2008, University of Michigan economist Lutz Kilian created a similar home-brew index of ocean freight costs and argued it could be used to spot turns in the global business cycle.

Image without a caption

There’s just one problem with this theory. While Baltic Dry aficionados were able to pat themselves on the back after the index foreshadowed 2008’s precipitous slump in the S&P 500 and subsequent recovery, its record since then has been patchy. The indicator’s sharp pickup in late 2013 wasn’t matched by any great improvement in the global economy; worse, a slump to record lows at the start of 2016 was followed not by a crash, but a bull market that drove the S&P 500 up by nearly one-third in two years. bloomberg.com

Leading Economic Indicators Update April 2020

Never give in to fear, for only fools give into fear as it entails selling at the bottom and buying at the top

Let’s take one major event that most remember, the Great Recession. Even if you mistimed your entry into the market and started to open long positions well before the Dow had bottomed, you would be sitting on massive gains today. Panic based selling should, therefore, be viewed through a bullish lens, especially now that we are in the era of forever QE and most importantly remember that the masses were not euphoric when this sell-off started.

There is a time to sell, and that time arises when the masses are in a state of ecstasy. When the markets sell-off, it means that there are going to be plenty of opportunities, so instead of panicking, one should build a list of stocks that they always wanted to purchase. The markets always return to the mean and hence the saying the greater the deviation from the mean the better the opportunity. History clearly illustrates that ultimately, the market trends in one direction only (up).

The Crowd is hysterical

There is nothing more to add here; other than, jump in and buy all the top-notch technology and AI-based companies you can get your hands on. Many of them are almost being given away.

Leading Economic Indicators: Finally in Sync With The Stock Market?