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The Markets End The Week Teetering At Key Levels (Technically Speaking For 6/8-6/12)

Jun. 12, 2020 5:30 PM ETSPY, IWM, QQQ, IEF13 Comments
Hale Stewart profile picture
Hale Stewart


  • Financial indicators (credit market spreads and yields, the stock market) have returned to pro-growth positions.
  • Harder data is still very negative.
  • The markets were down for the week.

The first section of my Friday market column uses the economic analysis methodology developed by Arthur Burns and Geoffrey Moore, which classifies indicators into long-leading, leading, and coincidental. The purpose is to determine the current economic trajectory of the US economy. The second section looks at the macro-indexes using widely used and traded ETFs. This analysis helps to inform my ETF recommendations.

Currently, the US is in a recession. When looking at the economic numbers, we're looking for "green shoots" of economic activity that indicate growth is likely to occur.

Long-leading indicators

The Fed's efforts to calm the credit markets have been successful.BBB yields (left chart) spiked in March as the credit markets seized. Yields have returned to low levels, lowering the cost of credit. The Fed is also pumping money into the economy (right chart) at an unprecedented rate.

Unfortunately, the corporate profits picture is very weak. From Factset (emphasis added):

  • Earnings Growth: For Q2 2020, the estimated earnings decline for the S&P 500 is -43.3%. If -43.3% is the actual decline for the quarter, it will mark the largest year-over-year decline in earnings reported by the index since Q4 2008 (-69.1%).

As a result, businesses will be less inclined to hire and add new capital, which will lower demand.

Leading indicators conclusion: The Fed has "set the table" for economic growth, lowering credit market stress, and creating as much money as possible. This hasn't yet translated into better hard data.

Leading Indicators

Here, most of the hard data is bearish.

New orders for consumer durable goods (left chart) and non-defense capital goods (right) have dropped sharply.Building permits have also declined.

Yesterday, I noted that new applications for initial unemployment claims are still extraordinarily high.

The financial markets, however, are providing a few "green shoots."The yield curve

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (13)

2 much QE profile picture
US in a recession and the bear market was a blink of an eye. Don’t think the market can shake it off that easy, look out for big time declines ahead as consumer demand is weak and unemployment still high. It will eventually come to a head.
Hale Stewart profile picture
This was the first week when the Fed's opinion was out there for all to see. They predicted a weak and slow recovery. It's having an effect.
Thank you for sharing your work.
Maxwells Demon profile picture
@Hale Stewart very nice and detailed discussion of charts and the economy, but no mention of what is screaming at us - namely a four day island top after and extended directional run. If not reversed quickly (say by Wednesday) it foretells a significant pullback if not new lows. Combine that with the approach of election season and all the uncertainty that entails and it is hard to see where equities will get the energy to continue the rally. Basically we have July for Congress to provide any more relief packages as August brings the conventions after which it's difficult to imagine there being enough focus and inter-party accommodation to achieve much of anything.
Hale Stewart profile picture
Your point is taken.

However, I'm not a big fan of using a single candlestick or group of candlestick patterns for analysis. The failure rate of their predictive capabilities is pretty high -- or, more correctly, high enough that I think their predictive capabilities are weak.

I look more for very general single-market trends and than looking at multiple markets (bonds, commodities, equities) to (hopefully) get some idea for what's happening.
Very well done, thanks.
Excellent data and commentary,thanks.
HS, thanks for this. In agreement with some other comments I have noticed and appreciate your consistently good work, but have not commented previously. Best to you and yours.
Don't think I've commented on your articles before. Just want to say I read them often and appreciate them and don't acknowledge them enough
Robw0328 profile picture
Good stuff. Unless people are taking 2023 earnings for today’s prices, things are just crazy overvalued. There’s just no margin for safety. Things have to come down.
Mugsleysmom profile picture
Thank you for this detailed and thoughtful analysis. Was it Betty Davis who said "fasten your seatbelts. It's going to be a bumpy ride"?
Hale Stewart profile picture
Yep. The equity markets are already technically extended on a momentum basis and the Fed has said that growth will be weak. Not a good combination for the bulls.
Excellent analysis. "So, once again, the fixed income market is projecting weak economic growth, which is at odds with the bullishness of the equity indexes." In the context of a zillion new speculators, I'll follow the message from the bond market and ignore the stock market. As we know, the stock market has not had much to do with economic or earnings growth for several years. IE: SPX up 30% on 0.6% earnings growth in 2019.
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