liquidity cycle

[dtrader98]

A current debate ensues as to whether the dollar decline is inflationary or not. When faced with several arguments on both sides, I often find it objective and useful to look at charts to determine whether or not there is any truth to either stance.

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While common sense tells me that they are negatively correlated, a cursory glance shows that often times this is not the case. In mid 80s, s both fell in tandem.
Another exercise is to look at whether there is a lag between the two metrics (it seems that if we lag one by a few years, they should line up exactly). This does not provide a perfect correlation either. Keep in mind this is the data we are given by the government, it does not necessarily represent true inflation as there are various ways it is adjusted (but that is another argument outside of what we have to objectively plot).

It's useful to actually plot these things out and look at what really happened before making assessments. The same can be said about the dollar and markets if you look at the data objectively: there is no direct correlation.

 

[scriabinop23]

very good post. those recent muted inflation numbers stink of meddling.

 

[dtrader98]

Came across the s&p/case shiller home price index. Sure looks recessionary to me.

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1659704" border="0" alt=""><br /></font></p></font></p>

http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_102626.pdf

 

[stock_trad3r]

Economic perpetualism dictates that virtually all economic cycles will cease

 

[dtrader98]

This is shaping up to be one of the worst novermbers on record. Right up there with the 74 inflation/stagflation/oil debacle,
87 crash, and 2000 crash. Definitely not a good sign to argue no recession is in sight. One of the last holdouts of the recession liquidity cycle confirmations I posited was the market not following.

Let's hope they pull out some miracles and fast, if they want to get those bonuses they're so used to. Most of the major sentiment indicators are pointing to a local bottom, similar to the last two big ones I wrote about in august.

I'm still expecting the markets to pull out some miracle by year end, and hoping this is just loser dumping, but I definitely don't like where November is headed.

With the exception of 87, the majority of the big Nov drops indicated more damage to come. Meaning, it would take something like an additional 10-20% drawdown to mimic 87 and have a fast recovery. Sigh, not good ... not good.

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P.S. Stock tr3dr, please don't add your comments on this thread as I think ETers can draw their own insights without your empty perspectives, thanks.

 

[dtrader98]

Quote from dtrader98:

One more graphic depiction of sentiment extremes. Volatility is at an extreme high on s&p 500. I wish I had more data length to compare for summation index. For the period shown in the diagram, it's a pretty darn reliable indicator. Summation index is a commonly used breadth indicator. In this case derived from advancers and decliners on NYSE.

<img src="http://elitetrader.com/vb/attachment.php?s=&postid=1563106" border="0" alt=""><br /></font></p></font></p></font></p>

If anyone has a longer period data or knows a source to get it (gratis), pm me and I'll update it.

Thought it might be a good time to update this plot, as the bearishness is getting thick again.

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