The poor economic news keeps rolling in and I will make it a point in the monthly edition to go over the current macro-economic outlook for both the US and world economy. For now, it was just further weakness with news of weak durable goods announcement, a revised lower GDP, and on Friday a very week Chicago purchasing managers’ report. The Chicago PMI fell to 49.7, its lowest level in three years, while consensus forecast was for 53.1. The employment index hit 2.5 year lows and new orders were at the lowest levels in 3 years. Yes I’m aware few people care about the fundamentals of the market at this point, but I guarantee you that the words fundamentals and earnings surprise will be repeated often.
On the Daily Cycle, it’s honestly difficult to tell where the Cycle wants to go. The natural inclination is to simply state that “QE to Infinity” is going to lift all boats, so just go out and buy it! Although there might be a significant element of truth in that statement, the reality is probably that this bull market is just not going to make it that easy. What QE has probably done for Equities is smoothed out the Cycles a fair amount. We see that in the uniform rise since the last ICL 15 weeks ago, as we see that same pattern during past QE events.
So I’m not certain we should expect to see anything different at this point, the safe bet is to just say we’re headed higher. What we’re probably looking at though is another 5-10 days of narrow to declining prices as the Cycle dips into either a Half Cycle Low or a stretched QE induced Daily Cycle Low. In both cases it’s probably irrelevant, a shallow low followed by a rally is the most commonly accepted outcome here.
The result of a shallow HCL or DCL is to bring the Investor Cycle back down towards the bottom of the clearly rising channel in preparation for the next wave higher. If past QE Cycles are any guide here, they have run on average 30 to 35 weeks in length, meaning that this Cycle could ride that channel through the coming election and into the New Year.
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