I haven’t been able to decide whether economic data is a blessing or a curse. On the one hand, it seems to reveal something about what is going on in the world; and that is good because I can use it to explain how the world works and what the market is going to do and how smart I am that I can see this in the data.
On the other hand, the information almost always conflicts with itself. I mean that one report says the economy is doing well and another says “not so much.” This is helpful because I can pick and chose and my readers can admire me for making sense of it all. But first I have to actually succeed in doing that, which is not so easy because the data conflicts with itself.
The real problem with data is that there is too much of it. Do you know that the Federal Reserve Bank of St. Louis tracks and makes available to the world 383,000 time series? No wonder my head goes around.
There are websites and companies that will process all this information for you and send you their experts’ opinions on what it all means. And they get paid very well for this service, so maybe it is useful. Or maybe it’s just an illusion that with enough data you can, or any way should, be able to understand what is going to happen in the future. If we can know that the sun is going to explode in 7.59 billion years, surely we can know what the market is going to do in a week.
If nothing else you can prove to clients with a lot of money that whatever you want them invest in at the moment is the logical and reasonable thing to do because the data says so. Somewhere. If things go right, you get a commission and other valuable things. If if things go badly, you still get a commission and you can say it isn’t your fault because you just followed the data. You may lose the client, but you will win the lawsuit.
The problem is we try to solve everything by thinking. About data. The world is not ruled by the head. It is ruled by the heart. Even in stock prices. Especially in stock prices.
You can take that as the Bumblebee arcane, it may mean something but it doesn’t matter because you can’t make money with it, saying of the day.
Stock Market
Stock market traders are undecided about what the situation is. The “situation” means the objective factors to which we have react in order to make money trading. This is typical of turning points in the market. Unfortunately, it is also typical of markets that continue on in their original direction, so we can’t take confliction as confirmation.
Stocks moved up for three days last week and down for two. On Friday, shares attempted to continue the rally started on Wednesday, but closed down on the day, but above the recent trading range high. Meanwhile, on the weekly chart prices failed to hold above the 50 percent retracement level.
There are currently reasons for bullishness and reasons for bearishness, and traders haven’t figured out which are more important. With reference to the long term investment environment, I noted in an earlier post:
Bumblebee does not at this time see signs of a major contraction. Employment data is not bad. There is still no sign in bond yield spreads of difficulty. AAA bond yields, which frequently spike before a recession, have not done so. But for stock prices, we believe there is currently no reason to be a buyer.
This remains the situation, and explains the pullback in prices and the hesitancy of traders to commit one way or the other.
The economic data on Friday were positive on the surface and somewhat weak on closer examination. The second estimate of 4th quarter Real GDP growth increased 0.3 to 1.0 percent. The increase was, however, the result of an change in the inventories number. Bigger inventories are not necessarily indicative of more demand.
Personal Income was up 0.5 percent MoM, which heartened some, but the YoY change was negligible.
These are the kind of conflicting signals we are getting every week from the data, and they are typical of a changing picture. It is my belief that the Really Big Picture (RBP) portends a recession to take hold in the next six to nine months for the reason you can read in the “Bumblebee Perspective” box on the sidebar. I have said, though, I do not believe this outcome is writ in stone just yet, and the conflicting information about the economy condemns us to a trading type market for a while.
We get some readings on the industrial sector next week and the important Employment Report on Friday. Industrials have not been doing well, and the reports are expected to continue to indicate weakness. Weakness is not expected in the employment data.
Gold Market
This is my first post covering the gold market, which I introduced last Thursday. I mark my trading suggestions from that date.
Gold is breaking out of a two year down channel and is consolidating just above the channel top. This is a buy signal, and so I’m long. Because the break out could just be a swing high, I will exit if the channel does not hold as support.
A better entry would have been a long off the bottom of the channel, which was also a swing trade low. But it’s too late for that now, and waiting for a pullback is unwarranted after the breakout. This is higher risk than I like, but there’s no other good way to get in.
Gold has one eye on the stock market, one eye on crude oil, one eye on the E.U., one eye on China, and one on the rest of the world. When the U.S. stock market did not crash last week as gold traders were fervently hoping, gold consolidated in a triangular flag just above the channel line. This is bullish for gold (and probably bearish for stocks), so we remain long.
Oil Market
The EIA Petroleum Status Report on Wednesday showed a weekly increase in crude oil inventories of 3.5 million barrels and a decrease in gasoline of -2.1 million barrels.
Reports say that crude storage facilities are going to be maxed out soon or maybe sooner, and I don’t know just what happens then.
Technically, crude attempted to rally out of a triangle on Friday, but prices collapsed before the close, forming what could be taken as a reversal bar. The general pattern, though, shows a clear double bottom after a long decline and a breakout of the channel in the direction of the channel.
This is not a bearish move but signals us to be attentive to the possibility of a bull rally. A failure of a rally to materialize would then signal a possibly precipitous drop in prices. The double bottom leads me to think that unlikely, but for now, I’m just watching.
Recommended Reading
“Prelude to Recession”: the Dallas Fed’s Unsettling Charts
Wolf Richter, Wolf Street
“Also let’s clarify upfront that Evan Koenig, Senior Vice President and Principal Policy Advisor at the Dallas Fed, did not forecast a recession. No Fed official, and no economist employed by any Fed entity, would ever publicly do that. For them, publicly, recessions exist only in the rearview mirror. For them, publicly, economic growth goes on forever.
“Yet they know what’s going on.”
Lacy Hunt: Secular Low in Long-Term Treasury Bond Yields Remains Ahead
Mish Shedlock, Mish Talk
“Hoisington’s bond managers, Lacy Hunt and Van Hoisington, doubt the global economy will rebound soon thanks to low industrial output, heavy debt, and the commodities collapse”
Abundance
Joshua Brown, The Reformed Broker
“What the hell are we selling? Time-wasters and profit-shrinkers in place of companies and industries. Schumpeter didn’t have the current version of creative destruction in mind when he coined his phrase. This is destructive destruction.”
Why the European Periphery Needs a Post-Euro Strategy
Thomas Fazi, Social Europe
“In recent weeks, Germany has put forward two proposals for the ‘future viability’ of the EMU that, if approved, would radically alter the nature of the currency union. For the worse.”
