Leading Economic Indicators: Finally in Syn 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.

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

Random thoughts on leading economic indicators and the stock market

The markets are volatile (Sept to Oct period) and the crowd tends to overreact to the news. Remember, every disaster becomes a disaster because the masses were conned into believing a false narrative. You say no way; well then how come reacting to disasters pays so poorly. The stock market is the best barometer for the disaster-prone. If disasters paid off well, then the Dow should be closer to zero than 27K.

According to the Tactical Investor alternative Dow Theory, if the Dow utilities trade to new highs, it is a good omen of things to come. In other words, the Dow industrials will follow the same path sooner or later. The Dow utilities surged to new highs in September and as a result, the Dow industrials and transports are expected to follow suit. The transport sector is expected to outperform the overall market.

Huge amounts of money have left the market indicating that the crowd is panicking at precisely the wrong time. History indicates that whenever the masses panic, opportunity is usually around the corner. Hence the only one that is going to take another round of beatings is the masses.

The Markets are mimicking the pattern they put in 2009; if this pattern completes it will lead to an explosive upward move.

A Tactical Investor refuses to panic even when it looks like there is no reprieve in sight, for history indicates that panicking never pays off when it comes to the markets. The masses were, are and will always be prime cannon fodder candidates; they are hard-wired to panic and when they do the outcome is never good. Examine any panic based event, and one thing stands out like a sore thumb, the masses always took a beating.

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