Prompted by a question from Hailoh on IC forum:
“Down for sure, but in what stages? Without a Lehman failure there may not be the impetus for a dramatic plunge towards the end.”
The S&P 500 is testing primary support at 1850/1870. Decline of 6-month Twiggs Momentum below zero warns of a primary down-trend. I am a great believer in chart symmetry and breach of 1870 would most likely result in a decline to 1500, the next major support level.
This could still prove to be a false alarm — as in 1998, 2010 and 2011 — but charts like bellwether transport stock Fedex suggest otherwise.
Also the 10% year-on-year declining profit margins for Q3 2015. A 20% year-on-year fall for Q4 2015 would confirm.
FDX is more volatile than S&P 500, but you have to squint pretty hard to see FDX leading the S&P 500.
The quarterly chart doesn’t show much detail. Fedex gave good warning in September 2007:
And reasonable warning in September 1999/January 2000:
Interesting to note in your top chart the TMO rolling over well in advance of the rollover we are seeing in the S&P 500. It seems the loss of momentum is shown in the TMO this time around far clearer than during the last two tops in 2000 and 2008.
Any thoughts on this?
P.S. love your insights – keep up the awesome work. Should be an interesting year to be studying the markets…
Hi Sam,
Divergence is clearer this time because the change has been more gradual than in 2008 (2000 also gave more warning).
It is hard to pick the early rollover at the time because Momentum tends to reverse whenever there is a large consolidation or correction. But it is only likely to follow-through below zero when there is a primary reversal.
The last chart interests me the most.
Why do corporate profits spike after a recession ends? It can’t be pent-up demand because the 1980 recession was only six months. How much demand can there be in only six months?
Could government spending be the reason? By the time the 80 recession was known, we were in the 81 recession so the government could have easily pumped money into the economy through unemployment benefits and food stamps.
The collapse in corporate profits after the spike suggests that whatever the cause, the effects are short-term (government spending falls dramatically after a recession ends).
Are corporate profits that dependent on government spending?
Falling wages, lower commodity prices, low interest rates……..