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Feb 4, 2010 Update: S&P500 1071. The model continues to perform beautifully in the market chaos of 2010. Most investors have a voracious appetite for market information, and turn to many sources for insights. The epiphany comes when the information consumer realizes that most of the pundits are herd followers. During market strength, most of the talking heads see nothing but record highs ahead. During market weakness, the same heads tell their audience to sell everything in sight. Wouldn't it be nice to have a model which takes the emotion out of trading? You have it right here. Year-to-date, the market has lost 3.67%, while the model shows a gain of 1.77%.
Tuesday's sell signal was tough to swallow. The market was climbing like a rocket, and the pundits were bullish. Followers of the CrystalBull.com Trading Indicator exited the market, while the herd lost nearly 3% in 2 days. Tune out the noise. We all can use a little more free time and less stress in our lives.
The headlines from last week's Personal Income data were all positive: "Personal Income UP, Disposable P.I. UP, Savings rate UP." But digging into the data reveals some important trends. Yes, private industry wages were up 0.1%. (Remember that there has been a large amount of government stimulus spending.) But government employee wages were up 0.24%, and government social benefits were up 0.65%. Couple this with the fact that social insurance contributions rose only 0.08%, and Personal Taxes actually fell 0.13%, and you can see that this is unsustainable deficit spending. (Also, a head-scratcher in the data is that private farm income nearly doubled from September to December. If you have an explanation for that, please email us.)
Dec 23, 2009 Update: S&P500 1119. Personal Income numbers for November came out today. Just a few minor insights in this very important report. First, the headlines read that Personal Income rose 0.4%, while Personal Spending rose 0.5%. Those are slightly respectable, but nowhere near high enough to sustain a real economic recovery. Digging into the numbers, we see that the majority of the increases were in the following areas: 1) proprietors' income (both farm and non-farm business owners are doing well). 2) In the Employee wages section, we see that the majority of the increase was in the service sector. That is not surprising, but worth acknowledging. 3) Government wages were again higher. 4) Passive income (rentals, interest, dividends) made up much of the remaining increase. Manufacturing remains weak. Studying our Personal Income chart, it is difficult to call a recovery in the trend.
Dec 4, 2009 Update: S&P500 1098. A happier jobs report: job losses are slowing. But it should be tempered by the fact that 52,000 of the jobs created were temporary jobs. With new employment taxes and regulations pending in Congress, it is no wonder we are having a jobless recovery. Also important to note, the jobs losses for September and October were both revised, showing results better than previously reported. September had job losses 80,000 less than previously reported, while October had job losses 159,000 less than previously reported. So, as you study our New Jobs chart, you will see that the job market is turning around. That is an important trend of which an investor should be aware.
A little tidbit to tell your children/grandchildren: Unemployment rate among college graduates: 4.9%. High school graduates: 10.4%. Less than high school diploma: 15.0%. (Essentially 5, 10, 15%, depending on education.) Education is extremely valuable at all times, but really shines during a recession.
Nov 28, 2009 Update: S&P500 1091. Just a follow-up to this week's Personal Income numbers. It is puzzling that Personal Income would be within 1.5% of its 2008 high, as we have witnessed wages and employment fall across the board. So, we wanted to dig a little deeper into the numbers. First, we use real (adjusted for inflation) numbers in our Personal Income analysis. We have had a very modest 0.21% DEflation since May, 2008, so purchasing power per-dollar has actually increased slightly. And yes, wages and salaries have decreased since May, 2008, but there are some insights in the numbers:
In private industries, wages have decreased by 4.8% overall. While that is not a healthy sign, it is a smaller decrease than one might expect with the job losses, furloughs, and pay cuts we have witnessed. And this decline in private industry wages has been offset by INCREASES in government wages (+4.2%), Social Security payment increases(+10.3%), and unemployment benefits paid (+273.4%). Disposable Personal Income fared even better, as income taxes fell.
So, it appears that government deficit spending has filled in the gap in personal income. We thought that was interesting, and that our subscribers would as well. We will save the political diatribe for another day, but we wish the American media would dig into the numbers to paint a clearer picture.
Nov 25, 2009 Update: S&P500 1108. Very strong surprise in today's Personal Income numbers. The BEA announced Personal Income figures for October, and revised the PI numbers all the way back to April. The last 6 months' figures were revised upwards from approximately 0.5% to 1.25%. Those revisions were a surprise, and proclaim that the US consumer is in a much stronger financial position than one might expect. In fact, in REAL terms (adjusted for inflation), Personal Income is within 1.5% of its May 2008 high. Disposable Personal Income (actual buying power) is within 1.25% of its May 2008 high. This is remarkable in this environment.
Durable Goods orders remain very weak. Until consumers start spending again, Unemployment will remain high, and growth will be slow. We are seeing signs of the jobless recovery we have anticipated.
An interesting, non-partisan look at how Socialism has crept into American life: Stalin's America
Nov 18, 2009 Update: S&P500 1105. Some insights into today's data releases... First, the headline reads that Consumer Prices rose 0.3% for October (a 3.6% annual rate). At first, that certainly appears as if inflation is coming back. However, it is important to separate the CPI numbers into Total CPI and CPI excluding food and energy. A study of our CPI chart (click here) is needed. CPI-ex-energy is relatively flat. The CPI was driven higher by rising oil prices, which were driven higher by a falling Dollar. It is not yet time to start worrying about inflation. Any extraction of liquidity (see below) or increase in interest rates will lower oil prices (in Dollars) faster than they will increase consumer prices, thus keeping the CPI number in check. Of course, inflation caused by our weak Dollar is a real concern.
Housing Starts remain weak as excess inventory remains high. The $8000 home buyer tax credit is helping to clear the excess inventory, but discriminates against new home builders, who cannot build a new home quickly enough to meet the tax credit expiration date. We expect housing to remain weak-to-flat for many months, as the inventory will remain high due to impending foreclosures. A recent report by TransUnion revealed that 6.25% of all home mortgages (10.2% in California, 14.5% in Nevada) are at least 60 days past due. This is the first sign of potential foreclosure, as homeowners have a difficult time making up more than one delinquent payment. This delinquency ratio has increased for 11 straight quarters, so we do not expect the inventory to clear anytime soon.
Nov 16, 2009 Update: S&P500 1111. Lost because of the new Retail Sales numbers released today (see below), new Money Supply figures slid under the radar, showing yet another large increase in the Monetary Base. When studying our Money Supply Chart, one notices that the Monetary Base is up 72% over October 2008, which was up 32% over October 2007. These are GIGANTIC increases in the Money Supply. The Monetary Base is up an astounding 130% in the last 14 months (just before Lehman Brothers filed for bankruptcy). This is unprecedented, and is the cause of the dramatic fall in the US Dollar and rise in the price of gold. The Federal Reserve has essentially doubled the currency in circulation via the printing press. These recent numbers show the Fed is still quite troubled with the state of the US economy. While the growth in the Money Supply has headed off a full-blown depression, one must remember that the extra liquidity must be withdrawn again in the near future, lest we have a collapse of the Dollar and unprecedented inflation. We should expect economic growth ahead, but tempered by the extraction of liquidity that follows. We trust that Ben Bernanke, a student of the Great Depression, will properly throttle the Money Supply, moderating both growth and inflation.
Nov 16, 2009 Update: S&P500 1111. Today's Retail Sales numbers contain a bit of a head fake, and it is important to dig a little deeper into the numbers. First, the headlines today proclaim that Retail Sales rose an unexpected 1.4% in October, higher than the 1.0-1.2% expected. What the headlines don't tell you is that the Commerce Department revised the September numbers downward, making the new October number look better. The revisions can be traced to revisions of the Auto Sales figures from the Cash for Clunkers fiasco*. Auto Sales were revised upwards for August (during CfC) and downward for Sept (post CfC), matching the overall revisions. Last month, we were told Retail Sales fell by 1.5% for September. Today's revisions show that Retail Sales actually fell 2.3% in September. This makes October number look better than they would have without those Auto Sales revisions. Without the revisions, October Retail Sales would have risen a less-than-expected 0.8%, instead of today's better-than-expected 1.4%. Most importantly, properly analyzing the numbers, Retail Sales excluding Autos rose by only 0.2%, half the expected 0.4% increase. Bottom line: Retail Sales are generally weak but rising, up an average of 0.5% per month since July, but still down 8.5% from their peak in November, 2007. Retail Sales are slowly recovering:
Click Here for Current Retail Sales Chart.
*As many of you know, CrystalBull.com views the Cash for Clunkers program as a blunder. Setting aside the poor implementation and execution, the CfC program essentially robbed from future sales, and pushed them forward into August 2009, at a time when dealer inventories were at a historic low. Without inventory, Auto Sales in September and October were bound to be lower than they otherwise would have been. The program was structured so that it primarily helped the foreign automakers, at the expense of the American companies. The big winners were the Korean automakers (Hyundai: up 47% in August and 27% in September, Kia up 60% in August), then the Japanese. In fact, of the big 3 American automakers, only Ford showed increased auto sales (up 17% in August, then lost the gains in September). The CfC program actually hurt the 2 bailed-out automakers it was intended to help: GM (down 20% in Aug., at the peak of CfC, and down more than 50% in Sept.) and Chrysler (down 15% in Aug. and down 50% in Sept.).
Oct 30, 2009 Update: S&P500 1036. Further to the volatility issue: Yesterday, the GDP numbers pronounced the end of the recession, and the market staged a very strong rally. Today, the Personal Income numbers were flat (after being revised downward for the last 2 months), and the University of Michigan's Consumer Sentiment numbers were very weak. The market sold off. Those who try to trade this market based on guesses are bound to get hurt. The CrystalBull Trend Indicator remains bullish. The CrystalBull Trading Indicator has returned 64.9% YTD, which trounces the S&P 500 YTD return of 17.5%.
Oct 26, 2009 Update: S&P500 1000. The current data show a highly unstable market, with volatile price swings. The CrystalBull Trading Indicator thrives in a volatile market, but traders should be aware that trades may occur more frequently than when the market is more stable.
Aug 20, 2009 Update: S&P500 1005. Introducing the all-new CrystalBull.com Trading Indicator!
Due to popular demand, we have added more dynamic data to our Trading Indicator. Since 08/1996, this model has outperformed the S&P500 by over 600%, and with great consistency! It has averaged just one round turn trade per month.
Click here to see the Historical Performance of the CrystalBull Trading Indicator
July 31, 2009 Update: S&P500 987. Some important notes about today's GDP release. First, the BEA has made many changes to the way national income and product accounts are calculated. Thus, figures since 2002 have been revised. Also, the chained figures (real, adjusted for inflation) which were chained to 2002 dollars, now are chained to 2005 dollars. That is an interesting event, and we are studying its ramifications. This occurs about every 5 years, so there is nothing sinister here; It just moves the benchmarks slightly. Those following GDP should take the time to study the latest Real GDP Chart.
Important to note is that previous GDP figures have been adjusted downward. As we all know, the US economy has been is severe recession. Preliminary Q2 figures show that Q2 was slightly worse than Q1, but only by 1.03% annualized. That is a sign of a bottoming in the recession, thus today's stock market rally. While our current economy is not robust, don't be surprised if the Q3 GDP is higher than Q2. That would technically be the end of the recession, but employers would need to start adding jobs before we start to see real strength.
Watch our Stock Market Trend Indicator, as it just came back into positive territory. It has been a terrific leading indicator of the long term trend.
Three short-term indicators (CBRSI, MACD, Trading Indicator) all remain out of the market, while the long-term Trend Indicator has just given a buy signal. We interpret that, while the long-term outlook is positive, a short-term correction may be imminent, and we will go 100% back into the market when the next short-term buy signal occurs (correction).
