The ECRI Growth Index is painting a potentially dangerous view of the economic outlook. Let’s take a look at the current reading:
Just as a disclaimer, this is unadjusted data. The ECRI will update old data after the fact. This is an economists view on indicators. I do not and would never support adjusting past data. Why? Because I use these charts to train my brain so to speak to interpret the past to judge the future. Much akin to Tom Brady watching old game tape to learn from the past, allowing him to make better decisions in the future
But if you adjust past data, you can’t adjust what your brain has learned.
So the tick lower here COULD BE the start of something bigger. We’ve been looking for it, it’s a little earlier than I thought we’d see, but it makes a lot of sense that we’d begin to see this turn lower, meaning the overseas weakness is starting to infect us. And the stock market is a leading indicator, so if it turns lower here, there will be a cascade effect lower.
Just be careful, always looking for a ‘crash’ or ‘black swan’ doesn’t make it more likely that there will be one. They are such rare events, and with everyone aware of this situation in Europe, it’s hard to think we’ll see one right now…
But there are other clues.
I showed this chart last week to my clients. Without getting into its derivation here, it shows me what the individual investor is doing, versus the professional. These spikes higher are normally signs we’re at a top…
Why? Because it shows that the individual is becoming a bigger player in the market. And they’re usually wrong…
So where does that leave us?
Interpreting future market direction is a process that I’ve likened to the old tv game show concentration where you are trying to solve a puzzle as individual pieces covering the puzzle are removed. So each day, each hour, each minute give us a better view of the puzzle. Sometimes the puzzle is easy to solve, sometimes more difficult.
We take daily data points from the market every day, and enter them into an algorithm that gives us the most likely future market direction.
We’re starting to see more bearish signs…
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Investment Research Group, Inc.