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-3.2-11-9-2018.png 11/16/2018: Latest update only available to Bronze members

11/9/2018: The Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) is at last week’s level and is not signaling a recession.  The FRR2-10 general trend is downwards.

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-10-18-2018.png 11/15/2018: Latest update only available to Bronze members

10/18/2018:

The BCI at 247.7 is below last week’s downward revised 248.5, and remains below this business cycle’s peak as indicated by the BCIp at 83.7. Also, the 6-month smoothed annualized growth BCIg at 11.1, is below last week’s 11.6.

No recession is signaled.

(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.-10-19-2018.png 11/16/2018: Latest update only available to Bronze members

10/19/2018: Figure 3 shows the COMP down from last week’s downward revised level. No recession is indicated.    COMP can be used for stock market exit timing as discussed in this article The Use of Recession Indicators in Stock Market Timing.

(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.-10-5-2018.png 11/2/2018: To view latest update please log in

10/5/2018: The unemployment rate recession model (article link), has been updated with the October UER of 3.7%. Based on the historic patterns of the unemployment rate indicators prior to recessions one can reasonably conclude that the U.S. economy is not likely to go into recession anytime soon. The growth rate UERg is at minus 10.94% (last month minus 9.51%) and EMA spread of the UER is at minus 0.24% (last month minus 0.23%).

Here is the link to the full update.

 

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

    is there an update to the DAGS chart available somewhere?

Leave a Reply

With reference to Section 202(a)(11)(D) of the Investment Advisers Act: We are Engineers and not Investment Advisers, read more ...
By the mere act of reading this page and navigating this site you acknowledge, agree to, and abide by the Terms of Use / Disclaimer