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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Saturday, October 31, 2009

Economic Momentum Expectation Measure

The relative strength of the MSCI Cyclicals index vs. the broader
SP 500 gives a good insight into investor expectations for the pace
of economic growth ahead. Chart.

$CYC relative strength turned up with the market last spring and
has vaulted back up to the historic long term high range. So, we
are seeing technical resistance and the possible beginning of a
cooling in growth expectations. The $CYC RS line does fit well
with the weekly leading economic indicator sets in that they are
flatlining in the short run as well.

The chart shows a slight break of short term support for $CYC RS
and it thus raises the question of whether portfolio managers are
at the early stage of thinking through whether rotation into more
stable earnings prospects companies might be appropriate. Keep
this yellow flag in mind re: cyclicals.

Back on 9/20, I turned cautious on the shorter term outlook for
the stock market and decided to take a trading holiday for 6 weeks
or so. I mentioned then that positve earnings surprise for Q3 ' 09
might lift stocks higher in the interim but that a period of either
consolidation or correction probably lay ahead. We got the bounce
from earnings as expected and we are now seeing some weakness.
I'll pick up more intensive coverage of the broad market again next

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