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-3.2-2-19-2021.png 2/26/2021: Latest update only available to Bronze members

2/19/2021: 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-1-21-2021.png 2/25/2021: Latest update only available to Bronze members

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iM-Weekly Unemployment Monitor

WCEM-Fig-1-5-29-2015

The 2/18/2021 DOL Unemployment Insurance indicates a stagnant insured employment situation albeit that both initial claims and continued claims decreased against the previous week.

The unadjusted initial claims, totaled 710,313 (or 0.50% of covered employment) in the week ending February 20, a decrease of 131,734 from the previous week The 50 year long term average of initial claims as a percentage of Covered Employment (January 1971 to today) is 0.38% and the average of the last business cycle (July 2009 to March 2020) is 0.24%

The advance unadjusted level of insured unemployment in state programs totaled 4,828,027, a decrease of 143,320 from the preceding week.

However, the total number of people claiming benefits in all programs for the week ending February 6 was 19,042,686, an increase of 701,102 from the previous week.

 

 

Please refer The iM-Weekly Unemploy

(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.-1-29-2021.png 2/26/2021: Latest update only available to Bronze members

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Market Signals Summary:

The MAC-US and the 3-mo Hi-Lo are invested in 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.-1-8-2021.png 2/5/2021: To view latest update please log in

1/8/2021: 4>
The 2/5/2021 BLS Employment Situation Report shows that the unemployment rate dropped 0.4% to 6.3% in January, ie. 10.130 million unemployed. Whereas, the 2/4/2021 DOL Unemployment Insurance Report  indicates that 17.836 million persons receive some form of unemployment benefit, or 11.4% of the labor force.

 

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 4.7% (previous 5.0) with a 95% confidence interval : 3.3% to 6.2% (previous 3.5% to 6.4%).

 

 

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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