About Me

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 !!!

Tuesday, June 15, 2010

Stock Market & Weekly Cyclical Pressure Gauge

The weekly cyclical pressure gauge (WCPG) draws from an
array of weekly economic data such as sensitive materials prices,
unemployment insurance claims, the 2 year Treas. yield and
selected short rate data. It rarely leads the stock market. The
stock market leads the WCPG far more often. However, lead
and lag times are so close, that the WCPG is best seen as a
rough coincident indicator of the stock market and as such is
not useful for short term market timing. It does have considerable
value in helping to de-mystify the actions of the market in the
short run and it can be especially helpful when it is trending.

The WCPG made a cycle-to-date peak of 226.0 on 4/30/10.
Since then it has trended sharply lower to 204.4 as of 6/11. The
stock market went right down with it. Now, the market has been
rallying over the past week or so, and I read this as a statement
that the WCPG will soon improve. Moreover, it is doubtful that
the market will continue to rally unless the WCPG bottoms and
begins to recover relatively soon. Such a recovery would tend to
confirm a market advance, but risk is there whenever the market
front runs the indicator.

Below I show the extraordinary action of the WCPG since the last
cycle top in mid 2007.

WCPG
Cycle Top, 7/07.......................................288.0
Pre-Plunge, 7/08.....................................255.9
Cycle Trough, 3/09.................................109.4
New Cycle Peak To Date, 4/30/10..........226.0
Last Reading, 6/11/10............................204.4


This has been the most volatile period for this indicator in modern
history and it underscores the market crash / rapid price recovery
evidenced over the mid - 2008 - April, 2010 period. Truly extra-
ordinary stuff. Although the WCPG could easily remain volatile well
into 2011, it is hard to imagine such volatility would come close to
rivaling what we have seen since mid-2008.

Notice also how far below the 2007 peak the indicator remains
despite its surge off the 3/09 low. This is a nice measure of just
how far an economic recovery may have to travel to bring new
peaks in its cyclical components. There remains substantial
slack in the US economy.

I will keep you up to date on this indicator and how it fares against
the stock market going forward, as such an exercise may have
diagnostic value.

1 comment:

Anonymous said...

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