jaudio shorts

Market experts all around the world have been debating the recession risk game for the past few weeks. There isn't even a consensus yet, as if a consensus would even matter when some of it is largely based on prognostications from those that have not crunched the numbers.

What do the numbers say, and what does it all mean?

Well, just in the same way our doctors can check our blood pressure, pulse, and temperature, we can play doctor on the economy by checking the economic indicators. And better yet, instead of having to search far and wide for all of these numbers, they are relatively easy to find just a few clicks away from where you are now.

In his book, THE SECRETS OF ECONOMIC INDICATORS, Bernard Baumohl takes on a subject that many people find boring & complicated and turns it into a highly organized simple read that doubles as a valuable resource tool. On page 12, he lists what he considers the 10 most important economic indicators most sensitive to stocks. I took these 10 indicators, put them in a chart, and I ranked them Bull, Bear, or Flat based on their 6-12 month trend. I ranked them this way only for the sake of simplicity. The idea behind this is that if we see a pattern of indicators flashing signs of Bull or Bear, we can get a better idea where the economy is going, and in turn, where the stock market is going. Though I am a biased bear, I did not distort the rankings to reflect my view and I was surprised at the results. My sources for the data are listed at the bottom of this blog.*

Here's the data:

Bull trends:
ISM Report--Manufacturing
Retail Sales
Personal Income and Spending
GDP

Bear trends:
Employment Situation Report
Consumer Confidence/Sentiment Survey

Flat trends:
Producer Price Index
Consumer Price Index
Weekly Claims for Unemployment Insurance
Advance Report on Durable Goods

In addition, it is my view that the CPI is leaning Bear, but not enough for me to classify it as a longer term bear trend. Though some of my above rankings can be debated, the important thing to note is that the economy doesn't seem to be in trouble--yet.

What does this tell us?

If anything, the economy is only flashing a caution sign. Friday's unemployment report should be quite telling. For all of you market timers, Friday may be a scaled down version of the excitement post FED, either up or down.

Just as SLO players timed their trades to the FED decision on interest rates, we can also time our trades to the news releases of the economic indicators that affect stocks the most. Looking for a calendar listing October's releases? Just go to http://moneycentral.msn.com/investor/calendar/econ/current.asp.

For those that want a more detailed calendar, go to
http://www.dailyfx.com/calendar/briefing.

The informed investor is the successful investor.

*online sources of economic data:

bls.gov
ism.ws
ows.doleta.gov
census.gov
sca.isr.umich.edu/main.php

Comments: View Comments |  Thursday October 4, 2007