Stock-market:
ECRI reported the WLI at a level of 127.7 and the six months smoothed annualized growth WLIg at +4.4%, as shown in Fig 2, all higher than last week. Four weeks ago the IBH model generated a sell-basic signal and 2 days later a sell A signal, indicating that the model had exited the S&P500. For those who are new to the IBH model, sell-basic is a warning signal to get ready to sell, it is not a sell signal, and it can be voided when a subsequent buy signal appears, before a sell A. Sell C does not need a sell-basic signal. So far the S&P has gained since the sell signal
MAC Fig 3 shows the spreads of the moving averages. The sell spread (red graph) has declined further from last week, but the buy spread (green graph) is forming a trough. No sell signal has so far been generated from this model. It will be interesting to see whether the sell spread forms a trough before it reaches zero. The model stays invested.
Bond-market:
The Bond Value Ratio is shown in Fig 7. The BVR has been flat from last week. In the longer term BVR will reach the long-term trendline and long-bond investors will have suffered considerable losses by then. The model stays invested in low beta bonds.
The Yield Curve:
Figure 5 charts (i10 – i2). The trend is neither up or down, but the model expects the yield curve to steepen. FLAT and STPP are ETNs. STPP profits from a steepening yield curve and FLAT increases in value when the yield curve flattens.
The Elusive Recession of 2012:
On Wednesday it was reported that the Fed would extend its easing measures until the unemployment rate declined to 6.5%. According to a projection from the unemployment recession model it will take at least to the first quarter of 2014 for this to occur. Here is a link to my update on this topic. Also attached is my composite recession indicator COMP. It is well out of recession territory, considerably higher than last week, and the trajectory is still upwards. It is hard to believe that ECRI still adheres to their recession position of September 2011.