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Macro conditions don't foretell a market crash soonSome points here looking back to 2001. (2020 was an irregular event): 1. Unemployment Rate (UNRATE green) has to start rising before SPX (yellow) drops. Currently UNRATE is declining. 2. The Unemployment Rate (UNRATE green) seems to follow the Unemployed Persons Rate (USUP dark blue). USUP just fell so presumably we can expect UNRATE to fall too this month. 3. Continuing Jobless Claims (USCJC red) and Initial Jobless Claims (USIJC light blue) just fell slightly. 4. There are still more job openings than people to fill them (JTSJOL Non-Farm Job Openings minus USCJC US Continuing Jobless Claims) And just announced today, Non-Farm Payrolls exceeded expectations. Conclusion is that macro conditions don't foretell a market crash in the immediate future. Of course that's provided we don't see another slew of bank failures, and that Congress can agree a new debt limit.
FRED:JTSJOL
by lavoriamo
The German Unemployment Rate will grow again...The German Unemployment Rate will grow again... With data from around 75 years, there is a possibility for growing again. With all these negative consequences for the employed people and their families. We must answer the question whether the Elliott Wave Theory is the right item to analyse what will happen and behave with crowds of people. The theory always leads to good results, but analysing and ...later believing is difficult. The yellow circle shows equality in market behavior. And passing the point A in red (first circle in yellow) during the mid sixties we saw a growing rate. There is a fear this happened again. Faster and higher. And that will be for the politicians and the employees with their families a big (!) economic problem.
ECONOMICS:DEUR
by armandogui
M2SL | Mo Money Mo Problems!Oh boy, many of them problems... Sometimes there are cycles, some cycles are shorter than others. In chart analysis, we are familiar when we analyze trends. Either short term or long term. The economy does not function only in trends. There are cycles. The most common / important of cycles is the yearly one. Unfortunately, cyclic patterns may prove tricky to analyze. But they are very important. Since I haven't taken the time to create TradingView indicators that calculate cycles, I will instead use a spreadsheet. For the following charts, I basically take all historical data of a cyclic chart and export that data. For every week or month, I calculate the average distance from the mean. With that, I try to calculate the "expected distance" from the mean, for each time of the year. Natural Gas prices one might say, are lower during the summer months. So an unusually high price in summer may become explosive during the winter. Today's main subject will be money supply. Since the January's M2SL data hasn't yet updated, I will try to guess how much money supply we can expect the following months. There is a cousin to the M2SL index which is updated weekly, and it is WM2NS. This index however as you can see on the chart above fluctuates from M2SL throughout the year. So, the regular WM2NS price should be adjusted based on it's cycle against M2SL. This curve shows the expected yearly fluctuation of the ratio, compared to the mean, Specific care has to be taken when we calculate the "fundamental cycle duration". Some cycles last 2 months, 3 months, or 6 months. The fundamental cycle of the economy is 3 months which repeats 4 times during the year. While this may prove irrelevant, It is incredibly important in the "cycle spectrum" creation. If we consider a 1M duration of the fundamental cycle, the chart isn't as representative as the 2M one. The Diesel / Gasoline cycle is incredible. This comes to prove that these two are highly correlated. With the same method we can compare gasoline price with crude oil price. For fuel prices, it seems that the end of the year can serve as a good baseline for the outcome of the next year. Absolute and relative are at their minimum in this time of year. Similar charts can be drawn for DJI. While more chaotic (wider error lines), weeks 10 and 44 (March and October-November) appear as the weakest periods of the year. So what M2SL price can we expect in the following days? I am an impatient man, I cannot wait for the results!!! After a substantial drop in money supply, one might fear that further downside is to follow. There are charts that calm such fears. Price has never touched the Quadratic Kernel indicator (a form of historic moving-average), and it may never touch it. When RRPONTTLD increases, money supply decreases (I am oversimplifying because I don't know the exact specifics). Bullish stochastics may signal more upside for money supply. Finally, I will analyze the protagonist chart: Suddenly, the 1.2% increaase doesn't sound that extraordinary... Sometimes, a simplistic analysis like this one above, may prove correct like this one below: Final thought: With inflation higher than expected and money supply about to increase yet again, how high of an inflation can we expect? With commodities bull-flagging against money supply itself, and Bitcoin bull-flagging against the Tech-Bubble, things can get pretty bad for equities... Tread lightly, for this is hallowed ground. -Father Grigori PS. I have analyzed several cycles for different kinds of commodities. If you are interested ask me so as to post them.
FRED:WM2NS
by akikostas
9
Arthur Hayes USD Liquidity IndexFormula constructed based on Arthur Hayes post, 'Teach Me Daddy'. USD Liquidity Conditions Index = The Fed’s Balance Sheet — NY Fed Total Amount of Accepted Reverse Repo Bids — US Treasury General Account Balance Held at NY Fed USD Liquidity — Number Go Up: Fed Balance Sheet — Increases RRP Balances — Decreases TGA — Decreases USD Liquidity — Number Go Down: Fed Balance Sheet — Decreases RRP Balances — Increases TGA — Increases
ECONOMICS:USCBBSEducation
by lever_tf_up
8
Market Analysis: The Coming RecessionIn this post, I will present a market analysis with a focus on recession metrics and indicators. Right now, many of them are sending a recession warning. Home Prices - U.S. home prices are surging higher at the fastest quarterly rate of change on record. (See chart below) This extreme rate of change in home prices is occurring as U.S. 30-year fixed mortgage rates also explode higher at nearly the fastest quarterly rate of change on record. (See chart below) Additionally, we see in the chart below that 30-year fixed mortgage rates have potentially broken out into a new uptrend on the longer timeframes. The best way to detect trend reversals is by using the Ichimoku Cloud. When the price closes above or below the cloud (the shaded area) it is considered to have "pierced" the cloud. Once the cloud is pierced to the upside, resistance becomes support. In this case, assuming the piercing sustains, we can see a sustained period of higher interest rates on 30-year fixed mortgages. Exploding home prices and exploding mortgage rates occurring simultaneously is unsustainable. Examine the yearly chart of U.S. home prices below and notice the similarities between 2005 and 2022. Notice that the Stochastic RSI is extended to the upside, and that home price extends above the upper Bollinger Band. Looking at this chart one could reasonably conclude that in the coming years home prices are likely to revert to the mean (orange line), as they did during the Great Recession. Many analysts try to contradict what this chart is suggesting by claiming that we are in much better shape now than during the sub-prime mortgage crisis prior to the Great Recession. But are we really? With spiraling inflation, every mortgage holder suddenly becomes relatively more sub-prime. We also did not see mortgage rates explode then as quickly as they are now. Unemployment - Analysts point out that the current low unemployment is a reason to believe a recession can be averted. But under the surface, that's beginning to change in a hurry. Below is a chart of most leading unemployment data published by the Federal Reserve: Seasonally Adjusted Initial Claims (Weekly). In this chart, we see that in about a period of the past 4 months, the amount of new unemployment claims has risen by around 100,000 or about a 50% increase. Compare this to the chart from the 2007-2008, when the U.S. economy was beginning to enter a recession (the shaded area represents where the recession began): In the period leading up to the Great Recession, we saw a rise of about 50,000 new unemployment claims or about a 15% increase over a similar 4-month period. Therefore, the rate of increase of initial unemployment claims (both in real numbers as a percentage) is higher now than when we entered the Great Recession. Perhaps more worrisome is the difference in how accommodative the Federal Reserve was in response to rising unemployment. Here is how the Fed Funds Rate changed as unemployment began to rise in late 2007 into 2008: As unemployment was rising, the Federal Reserve began to cut interest rates. Compare this to the current situation in the below chart which shows the Federal Reserve raising interest while unemployment is rising. This change in context is reflective of both the fact that the Federal Reserve is behind the curve with containing inflation and the fact that the Federal Reserve is prioritizing the current problem (inflation) at the expense of the future problem (unemployment). We are experiencing a macroeconomic situation whereby rapidly rising initial unemployment claims are being paired with rapidly rising interest rates. This combination is unlikely to end with any other outcome than a recession. For more details on unemployment data see here: www.dol.gov To interact with the initial unemployment claims data on a weekly basis you can go here: fred.stlouisfed.org Yield Curve Inversion - The 10-year minus the 2-year Treasury yield is used to detect an impending recession. When the 2-year yield rises above the 10-year yield that creates a yield curve inversion, which can often indicate that a recession is coming. Right now the yield curve inversion is very steep. In fact, just recently, the yield curve inversion actually steepened to a level that was even worse than what we saw before the Great Recession. Perhaps most alarming are the rates of change in interest rates. Look at the 10-year yield Rate of Change on a 3-month basis: Here's the 2-year yield rate of change: The federal reserve uses the 10-year minus the 3-month as a more reliable indicator for detecting an impending recession than the 10-year minus the 2-year. However, the rate of change for the 10-year yield has been so parabolic to the upside that the 3-month yield has been struggling to invert relative to it. However, that may soon change. Here's the 10-year minus the 3-month yield chart: Volatility - As you know, volatility is measured by the VIX. The yearly Stochastic RSI for the VIX is trending upward, signally the potential for greater volatility now and throughout the years ahead. This part is a little confusing, but try to follow if you can: Volatility of volatility is measured by the VVIX and is considered a leading indicator of the VIX. Currently, the VVIX is so suppressed to downside that the K value of the Stochastic RSI oscilator has reached zero for only the second time ever. (The first and only other time this has happened was in 2008). While this may be more coincidental than predictive, it nonetheless suggests that volatility of volatility has nowhere to go but up. See below. Margin - Margin has already unwinded both in real numbers and as a percentage by a magnitude that is consistent with, and usually only occurs during, a recession. See chart below. Credit to Yardeni Research, Inc. You can view their full report here: www.yardeni.com Stock Market - Several bellwethers in the stock market are showing that, while we may have a robust rebound from extremely oversold levels in the short term, the longer timeframes look quite bearish, especially for the interest rate-sensitive tech and growth sectors. For more details, here is my analysis on the QQQ/SPY relative performance: Tech and growth are not alone in the bearish context. Indeed, the bull run from the end of the Great Recession to the current period has been characterized by increasing prices but decreasing volume. This is generally bearish, and may reflect that quantitative easing was a large cause of the bull run. Now, quantitative easing is ending in the face of spiraling inflation. Other Metrics - There are many other metrics that are used to detect recessions (e.g. GDP, PMI, M2V). Some may even look toward shifts in demographic trends, rising geopolitical tensions, declining globalization and climate change as recessionary factors. While I cannot discuss every possible metric, one last metric worth considering is the corporate bond market. In 2020, during the COVID-19 shutdown, in order to stabilize markets, the Federal Reserve rushed in to save corporate bonds from crashing fearing that high borrowing costs for corporations could cause liquidity issues. Corporate liquidity issues can cause a whole host of issues from bankruptcies to layoffs. Currently, however, corporate bond prices have fallen to nearly that of the COVID low when the Federal Reserve rushed in to buy, yet the Federal Reserve is only just beginning quantitative tightening and just now beginning to roll bonds off its balance sheet. Finally, I will leave you with this note: The time-tested winning strategy is to continue contributing as much as possible to your retirement fund. If the stock market crashes, do not stop or lower your contributions or try to pull money out because you think the world will end. Rather, continue to contribute as much as you can afford no matter what to a retirement mutual fund with diversified holdings. Contributions during market downturns will buy you more shares of your retirement mutual fund relative to the number of shares your contributions bought prior to the market crash. When price rebounds (and it will) you would have been glad to stick to this investment strategy.
ECONOMICS:USSFHP
by SpyMasterTrades
121
The Fed Must Pivot When This Happens...We can try to predict when the Federal Reserve may pivot to a less hawkish stance by using charts. Below are some helpful charts. 1. Money Supply The chart shown above is a monthly chart of the U.S. money supply (M2SL). The white line shows the money supply over time. Below the white line is a stepped moving average (9 period), which I consider the 'steps of a debt-based economy'. In order for our debt-based economy to persist, the money supply must continue moving up these steps endlessly. For reasons beyond the scope of this post, if the money supply falls much below this level a financial crisis is likely to ensue due to credit and liquidity issues. Below are some examples in which money supply came down to the stepped moving average before climbing higher. Not even during periods of higher inflation did the Federal Reserve let the money supply fall below this level. Therefore, the closer the money supply comes to this stepped-moving average, the more likely we are to see the Fed pivot to a less hawkish stance. Since money supply is largely negatively correlated to the value of all assets priced in U.S. dollar, reaching this level may also be somewhat of a buy signal for these assets (e.g. stocks, Bitcoin). Indeed, the fact that money supply always goes up is a large part of the reason why the stock market always goes up, too. Whereas if inflation becomes so severe that it forces the Fed to take the unprecedented step of dropping the money supply below this critical level, then a financial crisis will likely ensue. Indeed, under the surface a crisis is already brewing. (You can see my posts linked below for more charts on this). 2. Eurodollar Futures It is generally accepted that the Eurodollar Futures chart is one of the best leading indicators for the Fed Funds Rate. (Don't know what Eurodollar Futures are? See the link at the bottom of this post.) Therefore, when Eurodollar Futures plateau or begin dropping, we can expect a Fed pivot. However, this assumes that the Fed Funds rate has actually reached the terminal rate implied by Eurodollar Futures, which has not yet happen because the Fed is so far behind the curve with hiking. Keep an eye on how markets react to quad witching on September 16th, the time at which stock-index futures, options on stock-index futures, single-stock options and index options simultaneously expire. This period has been known to generate significant volatility. See the bottom of this post for more information about quad witching if you're unfamiliar with it. 3. Yield Curve Inversion Usually around the time or shortly after the yield curve inverts, the Fed pivots to a less hawkish stance. Right now the 10-year and 2-year yields on treasuries are inverted. Below is a chart of the US10Y/US02Y ratio. In the below chart, I marked the points at which the Fed pivoted in the past (pivots were measured by marking the last date the Fed raised rates). The values that you see labeled on the bottom right are the values of the US10Y/US02Y ratio at the time the Fed pivoted in past hiking cycles. In the chart below, I zoomed into the current time. As you can see, the US10Y/US02Y ratio is currently below all the levels at which the Fed previously pivoted. Green is the highest ratio at which the Fed pivoted and red is the lowest ratio at which the Fed pivoted. The chart above shows that we are in uncharted territory in the scope of yield curve inversion that the Fed has created. The fact that the Fed has forced the yield curve invert to this extreme degree and has still not pivoted is likely reflective of one or both of the following hypotheses: (1) The Fed started hiking rates too late. (2) The factors of inflation from the demand side and/or supply side are worse than we experienced in the past (since at least 1988 -- the period covered by the data in the chart). Nonetheless, the Fed must pivot soon or risk causing a financial crisis. My hypothesis is that an inverted yield curve can have the effect, among others, of destroying money. Since some banks borrow at short term rates and lend at long term rates, an inverted yield curve makes this less profitable or even unprofitable. Therefore some banks will lend less. Since bank lending creates the most money, an inverted yield curve can decrease the money supply substantially. The Fed cannot let this monetary phenomenon continue for long without causing significant issues. 4. Inflation Of course the biggest consideration for the Fed is the rate of inflation. The next CPI report is not scheduled to be released until the morning of September 13, 2022, but we can use chart analysis to, with a high degree of certainty, predict the rate of inflation. The above chart is a chart of the price of gold (GOLD) multiplied by the Commodity Index Tracking Fund (DBC). This chart allows us to extrapolate both the supply and demand side of inflation to a high degree of certainty. It is a statistically valid leading indicator for the inflation rate. You can see how drastically it has fallen recently. You can also see how closely it matches the chart of the inflation rate on a lagging basis. For those interested in the statistics GOLD*DBC correlates to USIRYY as follows: r = 0.904, r-squared = 0.8844, p = 0 In the chart above I provide an even better correlation to the rate of inflation. In this chart I provide the total securities sold by the Federal Reserve as part of their overnight reverse repurchase facility, I then attempted to improve the correlation values by adjusting the value by using the price of gold as a multiplier. Although this may sound complex to those who are not familiar with the repo facility, in short it just represents the amount of dollars that the Fed is pulling out of the banking system. To diminish the effect of any non-inflationary factors that would cause the Fed to do this, I adjusted the value using the price of gold. Recently, the Fed has been pulling less dollars out of the system and on some days it has actually been putting more dollars back into the system. The Fed would not be putting more dollars into the system if inflation were still spiraling out of control. While anything can happen in the future, and additional inflationary shocks can occur, this equation gives us a tool to predict the rate of inflation before the CPI report is published. For those interested in the statistics, GOLD*RRPONTTLD correlates to USIRYY as follows: r = 0.954, r-squared = 0.94, p = 0 In the chart above, I've adjusted the values to match the inflation numbers as best as I could (I simply used a divisor that equates the peak values in both charts). It is far from perfect and it is definitely not something that you should use to trade on. The number that is actually reported by the government could be way different. The best that we, as traders, can ever do is use charts to try to predict what may happen, which is what I've done here. More information about Eurodollar Futures: www.investopedia.com More information about Quad Witching: www.investopedia.com
FRED:M2SL
by SpyMasterTrades
108