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-3.2-11-20-2020.png 11/27/2020: Latest update only available to Bronze members

11/20/2020: The Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) is at 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-10-29-2020.png 11/26/2020: Latest update only available to Bronze members

10/29/2020: gn=”right”>

iM-Weekly Unemployment Monitor

WCEM-Fig-1-5-29-2015

The 11/19/2020 DOL Unemployment Insurance indicates a continued improvement in the insured employment situation even though the initial claims remain high, but seemingly trending towards the long-term average.

The non-seasonal adjusted initial claims totaled totaled 827,710 in the week ending
November 21, an increase of 78,372  from the previous week.. This makes up 0.56% of the Covered Employment. The 50 year long-term average (January 1971 to today) is 0.38% and the average of the last business cycle (July 2009 to March 2020) is 0.24%.

The non-seasonal adjusted continuous insured unemployment totaled 5,911,965 a decrease of 167,617 from the preceding week.

Also, total number of people claiming benefits in all programs for the week ending November 7 was 20,452,223, an invrease of 135,297 from the preceding week.

 

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.-10-30-2020.png 11/27/2020: Latest update only available to Bronze members

10/30/2020: show=0]

 

Market Signals Summary:

The MAC-US is invested in the stock market, and the 3-mo Hi-Lo index is out of the stock market. The bond market model avoids high beta (long) bonds. The Gold Coppock and the iM-Gold Timer remain in gold. The Silver Coppock model is also invested in silver.

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

Stock-markets:

Fig-2.-5-29-2015 The MAC-US model is invested in the stock market.

 

(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.-10-2-2020.png 11/6/2020: To view latest update please log in

10/2/2020: 4>
The 11/6/2020 employment report claims 6.9% UER (last month 7.9%) and a total labor force 160,867,000 for mid-September 2020. However, the 11/51/2020 unemployment insurance report shows 21,508,663 persons claiming UI benefits week ending October 170.  Thus 21.51/160.87 = 14.1% (last month 16.6%) 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 5.8% (previous 6.3) with a 95% confidence interval : 4,4% to 7.2% (previous 5.0% to 7.0%).

 

 

iM-GT Timer

Fig-10-5-29-2015The iM-GT Timer, based on Google Search Trends volume indicator is invested the stock market 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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