Understanding the CFNAI Components
by Chart School - May 20th, 2013 3:35 pm
Courtesy of Doug Short.
The Chicago Fed’s National Activity Index, which I reported on earlier today, is based on 85 economic indicators drawn from four broad categories of data:
|
The complete list is available here in PDF format.
In today’s Chicago Fed update, we learned that three of the four broad categories of indicators that make up the index decreased from February, and only one of the four categories made a positive contribution to the index in March (the Production and Income category being the one positive contributor). Let’s now take a look at the historical context.
A chart overlay of the complete 45-year span of all four categories, even if we use the three-month moving averages, is a bit challenging for visual clarity:
So here is a close-up view since 2000:
But a snapshot of the 21st century contains only two recessions, so it’s unclear how the individual components have behaved in during the seven recessions since the 1967 starting point for this data series.
Here is a set of charts showing each of the four components since 1967. Because of the highly volatile nature of the data, the charts are based on three-month moving averages, a smoothing strategy favored by the Chicago Fed economists. I’ve also highlighted the values for the months that the NBER subsequently identified as recession starts.
…
 Email This Post
|
 Twitter
|
LinkedIn
|
 del.icio.us
|
Google+ |
The Recent Decline In Gold
by Chart School - May 20th, 2013 11:35 am
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
The below chart is depicted on a daily basis from 2008 through May 17, with the thin blue line depicting the 50dma of the Gold price, Silver price, HUI Index, HUI:Gold ratio and S&P 500. As one can see, the closing price of Gold on May 17 is $1359.10/oz. I find several items on the chart to be noteworthy.
As one can see, the Gold price, seen in the upper plot, had been (relatively) range bound since its highs in the summer of 2011, but has recently dropped below that range. Gold has experienced, from a technical analysis perspective, what can be categorized as a “breakdown,” and seems vulnerable, from a technical perspective, to further significant declines. The same general price movements for Gold are seen for Silver, which is seen in the second plot.
In the third plot is the HUI Index, what I consider a proxy for Gold stocks. It has been (generally) dropping since the Gold highs in the summer of 2011. In the fourth plot, one can see that the HUI:Gold ratio has been (generally) sinking during the post-summer 2011 Gold highs as well, and notably is now below the levels experienced during the Financial Crisis.
In the fifth and bottom plot, seen in green, is the S&P500.
(chart courtesy of StockCharts.com; chart creation and annotation by the author)
Click for a larger image
While the recent decline in Gold has generated significant commentary, the broader economic implications of such a decline – especially in light of other dynamics, including highly accommodative monetary policy and the broader stock market that exhibits characteristics of (at least) a very strong rally – seems to lack recognition.
While some have expressed that the decline in the Gold price should be viewed as a “positive” for the economy in general, I see the decline in Gold and Gold stocks – and their seeming vulnerability to further significant decline – as a cautionary signal, on an “all things considered” basis. Recently, I have reiterated my previous view that recent declines in the Gold price signal “deflationary pressures,” which is one (highly) disconcerting aspect among many that I see in the current economic environment.
(c) Ted Kavadas
http://www.economicgreenfield.com
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Vehicle Miles Driven: Population-Adjusted Hits Yet Another Post-Crisis Low
by Chart School - May 20th, 2013 10:35 am
Courtesy of Doug Short.
The Department of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through March. Travel on all roads and streets changed by -1.5% (-3.7 billion vehicle miles) for March 2013 as compared with March 2012. Cumulative Travel for 2013 changed by -0.8% (-5.6 billion vehicle miles) from 2012. The 12-month moving average of miles driven changed by -0.2% from March a year ago (PDF report). Both the civilian population-adjusted data (age 16-and-over) and total population-adjusted data and have hit new post-financial crisis lows.
Here is a chart that illustrates this data series from its inception in 1970. I’m plotting the “Moving 12-Month Total on ALL Roads,” as the DOT terms it. See Figure 1 in the PDF report, which charts the data from 1987. My start date is 1971 because I’m incorporating all the available data from the DOT spreadsheets.
The rolling 12-month miles driven contracted from its all-time high for 39 months during the stagflation of the late 1970s to early 1980s, a double-dip recession era. The most recent decline has lasted for 63 months and counting — a new record, but the trough to date was in November 2011, 48 months from the all-time high.
The Population-Adjusted Reality
Total Miles Driven, however, is one of those metrics that should be adjusted for population growth to provide the most revealing analysis, especially if we’re trying to understand the historical context. We can do a quick adjustment of the data using an appropriate population group as the deflator. I use the Bureau of Labor Statistics’ Civilian Noninstitutional Population Age 16 and Over (FRED series CNP16OV). The next chart incorporates that adjustment with the growth shown on the vertical axis as the percent change from 1971.
Clearly, when we adjust for population growth, the Miles-Driven metric takes on a much darker look. The nominal 39-month…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Chicago Fed: Economic Activity Was Slower in April
by Chart School - May 20th, 2013 9:35 am
Courtesy of Doug Short.
According to the Chicago Fed’s National Activity Index, April economic activity slowed from March, now at -0.53, down from March’s -0.23. This index has been negative (meaning below-trend growth) for eleven of the past fourteen months. Here are the opening paragraphs from the report:
Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to ?0.53 in April from ?0.23 in March. Three of the four broad categories of indicators that make up the index decreased from March, and none of the categories made a positive contribution to the index in April.
The index’s three-month moving average, CFNAI-MA3, ticked up to ?0.04 in April from ?0.05 in March. April’s CFNAI-MA3 suggests that growth in national economic activity was very near its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
The CFNAI Diffusion Index increased to ?0.03 in April from ?0.04 in March. Thirty-two of the 85 individual indicators made positive contributions to the CFNAI in April, while 53 made negative contributions. Forty-four indicators improved from March to April, while 41 indicators deteriorated. Of the indicators that improved, eighteen made negative contributions. [Download PDF News Release]
The Chicago Fed’s National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed’s website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. Negative values indicate below-average growth, and positive values indicate above-average growth.
The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.
For a broad historical context, here is the complete CFNAI historical series dating from March 1967.
…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Can Dr. Ben push Banks & Real Estate 12% higher?
by Chart School - May 20th, 2013 9:17 am
Courtesy of Chris Kimble.
CLICK ON CHART TO ENLARGE
Banks & Home builders lost nearly 80% in value at the 2009 lows. Dr Ben has doing a variety of “operations” to get these sectors back to health. Both Banks and Home builders faced the 38% Fibonacci retracement level of late, a key resistance recovery line that both have pushed above in the past couple of weeks, a positive technical development.
These leading sectors face two big tests in the upcoming weeks. Can they stay above the new 38% support level and can Dr Ben nurse them back to health, by reaching the half way point, the 50% Fibonacci level of the 2007-2009 Financial crisis declines?
Dr Ben is doing his best tricks in the operating room to nurse these sectors back to health. Can he push them 10%+ higher in the upcoming weeks? Stay tuned and keep a close eye on them!
-
-
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Gauging Investor Sentiment with Twitter: New Update
by Chart School - May 20th, 2013 12:35 am
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) is painting moderately high readings on up days and fairly flat reading on down days. This is a positive sign for a market making new highs. Even though there continues to be a very large number of tweets concerned with overbought conditions there are enough tweets showing excitement about higher prices that the daily indicator doesn’t travel far below zero.
The concern about overbought conditions is showing up in smoothed sentiment as a negative divergence with price. As prices move higher more traders are showing skepticism. This indicates that the probability of a pull back in the near term is rising. Unfortunately we don’t have the conditions in place to issue a consolidation warning if price pulls back immediately.
There are two things necessary for a consolidation warning. First we need a solid uptrend line in smoothed sentiment that confirms the move in price. At this point we feel it’s too early to use the last low as a reference point. Our second condition is a divergence from price that lasts at least three weeks and preferably a month that subsequently breaks our uptrend line. The current divergence has only been in place a few weeks. The reason we prefer a longer divergence is that people change their minds slowly. It often takes several days and even weeks for the weight of evidence to build to a point where market participants move from bullish to bearish. In the current environment we see more traders get concerned about overbought conditions every day. This is showing up in moderately high daily sentiment readings on very strong price moves (and the negative divergence in smoothed sentiment mentioned earlier). At this point we have warning that traders are getting concerned, but no warning of a possible decline.
Support and resistance levels generated from the Twitter stream pointed at 1700 on SPX and almost nothing else. There were a lot of tweets mentioning the current price during each day, but not a lot of predictions. The market closed barely above previous resistance of 1665 on Friday. We like to see a market close above a resistance level for a…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
The ’’Real’’ Mega-Bears: New Update
by Chart School - May 19th, 2013 12:35 pm
Courtesy of Doug Short.
Note from dshort: In response to a special request and in light of the strong market performance in the S&P 500 and meteoric rise in the Nikkei 225, I’ve updated my Mega-Bear weekly chart series through Friday’s close.
It’s time again for an update of our “Real” Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.
The chart below is consistent with my preference for real (inflation-adjusted) analysis of long-term market behavior. The nominal all-time high in the index occurred in October 2007, but when we adjust for inflation, the “real” all-time high for the S&P 500 occurred in March 2000.
Here is the nominal version to help clarify the impact of inflation and deflation, which varied significantly across these three markets.
See also my alternate version, which charts the comparison from the 2007 nominal all-time high in the S&P 500. This series also includes the Nasdaq from the 2000 Tech Bubble peak.
As these charts illustrate, the S&P 500 index of US large cap stocks has fared much better than the other indexes in this comparison.
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Weighing the Week Ahead: Are You Ready for Some Fedspeak?
by Chart School - May 19th, 2013 8:35 am
Courtesy of Doug Short.
Ready or not, we should expect a week dominated by an even greater focus on Fed policy. There are four reasons:
|
What should we expect?
Fedspeak is described by former Fed Vice-Chair Alan Blinder as “a turgid dialect of English.” In the Greenspan era, the Fed Chair was intentionally ambiguous. (Blinder, who favored a more open exchange, did not last long in the Greenspan era). In the Bernanke era there is supposed to be more transparency. There certainly is more open disagreement among the FOMC participants.
Two Viewpoints
Among market participants there is widespread sentiment that current asset prices of all types, and especially stocks, are the result of worldwide QE. These observers are ready to head for the exit at the first sign of any change in Fed policy. This perspective has been the most popular approach for several years ? right or wrong.
Some others regard stock prices as pretty normal, especially since a U.S. recession seems to have been avoided. It is the reduction of fear that supports the rally. The Fed has been relevant in reducing recession chances, but the market rally reflects improvement in fundamental factors ? reduced risk and stronger earnings. Most readers would be startled to learn how much negative sentiment is still reflected in current stock prices. Ed Yardeni looks at forward earnings in much the same way I do. Here is a chart showing a normal mean reversion in multiples. If you adjusted for inflation and/or the potential for other investments, we would be talking a market valuation at least 30% higher.
My fearless forecast is that none of the news on Wednesday ? either from Bernanke’s testimony or the FOMC minutes ? will resolve this debate! It will provide something for the parade of pundits to talk about.
I have some thoughts on what to expect from the Fed which I’ll report in the conclusion. First, let us do our…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
World Markets Weekend Update: The Rally Continues, Except for Hong Kong
by Chart School - May 18th, 2013 10:35 pm
Courtesy of Doug Short.
For the fourth consecutive week, the worldwide rally continues unabated. Seven of the eight indexes on my watchlist posted strong gains with Japan again topping the list with its 3.63% advance. Hong Kong’s Hang Seng was the one index to take a breather. Amazingly enough, that Nikkei surge was three percent smaller than the previous week’s 6.67%.
The Shanghai remains the only index on the watch list in bear territory — the traditional designation for a 20% decline from an interim high. See the table inset (lower right) in the chart below. The index is down over 34% from its interim high of August 2009. At the other end of the inset — four indexes, the ones for Germany, the UK, and Japan — set new interim highs on Friday, and the US’s S&P 500 set another new all-time high.
Here is a closer look at the YTD performance, which, more than anything, illustrates the power of Abenomics to levitate the Land of the Rising Sun. And speaking of the sun, I hope the future doesn’t trigger an allusion to a Japanese version of the myth of Icarus.
Here is a table highlighting the 2013 year-to-date gains, sorted in that order, along with the 2013 interim highs for the eight indexes. The strong performance of the Japan’s Nikkei over the past few months puts it solidly in the top spot with a 45.63% YTD gain. What is astonishing is that five more indexes are at YTD highs. Only the Hang Seng and Shanghai closed the week off their 2013 highs.
A Closer Look at the Last Four Weeks
The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. I’ve also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.
The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
Best Stock Market Indicator Ever: Unchanged at 96%; Secondaries Confirm ’Tradable’
by Chart School - May 18th, 2013 10:35 am
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the “sweet spot” time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.
The charts below are current through the week’s close.
Monthly OEXA200R Over the Past Few Years
Interpretation:
The OEXA200R ended the week unchanged at 96%.
Of the three secondary indicators:
- RSI is POSITIVE (above 50).
- MACD is POSITIVE (black line above red).
- Slow STO is POSITIVE (black line above red).
Commentary
According to this system the market is tradable. Not rational, tradable.
The “Printing Press Bull Market” continues. It could be seriously argued that since 2009, Fed intervention in its various forms has for all practical purposes simply camouflaged a second full blown Great Depression. Realistically however, Fed Chair Bernanke can only feed the economy so many cans of QE Red Bull before it eventually crashes. Consider the following realities:
- After 4 1/2 years and trillions of stimulus dollars GDP remains feeble. The stock market balloon is becoming increasingly untethered from the stagnant wealth of the nation – the classic asset bubble.
- The U3 unemployment rate fell to 7.5% in April, the statistical result of weak job growth and a Labor Force Participation rate hovering around a 35-year low. If the current LFP rate was the same as that of January 2009, the U3 rate would be 10.8%. In other words, the official employment picture is looking better if we just collectively pretend that huge numbers of discouraged, unemployed Americans simply aren’t there. Most telling is the Employment to Population Ratio, the proportion of the country’s working-age population that is employed, which logically includes the employable who have stopped looking for work. It fell from about 63% in 2008 to below 59% in 2009 and has remained there for the past 43 months, indicating no real improvement in net national job creation since the Great Recession began.
However, the overall net neutral rate of job…
| Email This Post
|
Twitter
|
LinkedIn
|
del.icio.us
|
Google+ |
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(
