How to Use iMarketSignals for Recession Signals

The four Recession Indicator models on iMarketSignals should provide early warnings of oncoming recessions. Historically, the prospect of an economic downturn (recession) has corresponded to declining stock prices. It is therefore prudent to reduce stock market allocations or exit the stock market prior to recessions.

Weekly Updates relevant to Recession Signals

(i) The Recession Indicator FRR2-10: This indicator is a long leading indicator, 14 month average before the recession starts, and the markets may still rise after this indicator falls below 1.0.

Fig-3.2-9-11-2020.png 9/18/2020: Latest update only available to Bronze members

9/11/2020: The Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) is above last week’s level.

A description of this indicator can be found here.

(ii) The Recession Indicators BCI :  On past performance, if BCIp falls below 25 a recession may begin about 20 weeks later, markets may have peaked or are about to peak. If BCIg falls below zero a recession followed historically on average 11 weeks later, markets have peaked.

BCI-8-27-2020.png 9/24/2020: Latest update only available to Bronze members

8/27/2020: gn=”right”>

iM-Weekly Unemployment Monitor

WCEM-Fig-1-5-29-2015 Today’s DOL Unemployment Insurance Weekly Claims signals a cautious improvement in the insured employment situation.

Positive takeaway is that the non-seasonal adjusted continuous insured unemployed at 12,264,351 are down by 176,510, a marked slowdown in improvement after last week’s 1,034,052 reduction.  Also positive, the total persons claiming some form of UI benefit as of September 5 are reported by the DOL as 26,044,952 a decrease of 3,722,513 from last week’s figure. However, this positive trend is not reflected in the non-seasonal adjusted initial claims which increased  by 28,527 to 824,542.

Please refer The iM-Weekly Unemployment Monitor

(iii) The Recession Indicators COMP : Similar to BCIg,  if this indicator falls below zero a recession starting a few weeks ahead is signaled by the model.

Fig-3.-8-21-2020.png 9/18/2020: Latest update only available to Bronze members

8/21/2020: show=0]

 

Market Signals Summary:

Both MAC-US and the 3-mo Hi-Lo Index have switched back into the market. The bond market model avoids high beta (long) bonds, and the yield curve is steepening. The Gold Coppock remains in gold but the iM-Gold Timer generated a buy signal 8/17/20 and is invested in Gold . The Silver Coppock model generated a buy this week.

The iM-GT Timer, based on Google Search Trends volume is invested in the the markets since 7/1/2020.

Stock-markets:

Fig-2.-5-29-2015 The MAC-US model switched back into the markets..

 

(iv) The Unemployment Rate Recession Model:

The model signals the start of a recession when any one of the following three conditions occurs:

  1. The short exponential moving average (EMA) of the unemployment rate (UER) rises and crosses the long EMA to the upside, and the difference between the two EMAs is at least 0.07.
  2. The unemployment rate growth rate (UERg) rises above zero, while the long EMA of the unemployment rate has a positive slope, and the difference between the long EMA at that time and the long EMA 10 weeks before is greater than 0.025.
  3. The 19-week rate of change of the UER is greater than 8.0%, while simultaneously the long EMA of the UER has a positive slope and the difference between the long EMA at the time and the long EMA 10 weeks earlier is greater than 0.015.
Fig-8.-8-7-2020.png 9/4/2020: To view latest update please log in

8/7/2020: 4>
The 9/4/2020 employment report claims 8.4% UER (last month 10.2%) and a total labor force 160,838,000 for mid-August 2020. However, the 9/3/2020 unemployment insurance report shows 29,224,546 persons claiming UI benefits week ending August 15.  Thus 29.24/160.84 = 18.2% (last month 19.5%) UER calculated from the unemployment insurance claims for exactly the same period.

 

CAPE-Cycle-ID

Fig-9a-5-29-2015Fig 9a depicts the CAPE-Cycle-ID and the year-on-year rate-of-change of the Shiller CAPE;  the level switched from 0 to +2 end of June 2020. This indicator is described here.

To avoid the bear market, exit stocks when the spread between the 5-month and 25-month moving averages of S&P-real becomes negative and simultaneously the CAPE-Cycle-ID score is 0 or -2. (read more)

 

Estimated Forward 10-Year Returns

Fig-9b-5-29-2015The estimated forward 10‐year annualized real return decreased to 6.3% (previous 6.8) with a 95% confidence interval : 5.0% to 7.0% (previous 5.5% to 8.1%).

 

 

iM-GT Timer

Fig-10-5-29-2015The iM-GT Timer, based on Google Search Trends volume indicator is invested the markets  since  7/1/2020. This indicator is described here.

 

0 comments on “How to Use iMarketSignals for Recession Signals
  1. jlombard says:

    is there an update to the DAGS chart available somewhere?

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