Chicago Fed National Business Index is looking ominous!
Tuesday, November 27, 9:25 a.m. Each month the Chicago Federal Reserve releases the latest readings of its National Activity Index CFNAI), which it has complied since 1967. The financial media, and therefore investors, pay little attention to it. They should pay more attention. The index is a weighted average of 85 indicators of economic activity [...]

Tuesday, November 27, 9:25 a.m.

Each month the Chicago Federal Reserve releases the latest readings of its National Activity Index CFNAI), which it has complied since 1967. The financial media, and therefore investors, pay little attention to it.

They should pay more attention.

The index is a weighted average of 85 indicators of economic activity the Fed draws from the four broad categories of: production and income; employment, unemployment, and employee hours; personal consumption and housing; and sales, orders, and inventories.

A positive number indicates that national economic growth is above trend, while a negative number indicates growth is below trend.

The monthly number had been in negative territory in 5 of the previous 6 months before improving to the flat-line at 0.0 in September.

But unfortunately it was reported yesterday that it unexpectedly returned to negative territory with a sizable drop to –0.56 in October.

Of more interest, its 3-month moving average also dropped to –0.56 in October from -0.36 in September. That is getting very close to the level of –0.70 that the Chicago Fed says it considers “an increasing likelihood that a recession has begun”

It was its 8th straight month of negative readings for the 3-month m.a. It is the solid line in the following Fed chart of the CFNAI. Note how its long-time accuracy repeated when it dropped below –0.70 in 2000, and in 2008, with the 2002 recession and 2008-2009 ‘Great Recession’ soon following.

And in 2003 when it dropped exactly to 0.7 but not below, and the slowing economy slowed no further but began to recover.

CFNAI graph

I believe from a quick perusal of its history that the only previous times besides 2001 and 2008 that the 3-week m.a. reached and exceeded –0.70 were in 1970, 1974, 1980, 1982 and 1991. Those were all recession and bear market years too.

To check the data yourself you can click here ;  CFNAI Current Data – Federal Reserve Bank of Chicago The column you’re looking for in the table the link takes you to is the one with the heading CFNAI –MA3.

By the way, this is a chart I lifted from my book Beat the Market the Easy Way! which shows what the stock market looked like 1965 to 1983, which encompassed the years 1970, 1974, 1980, and 1982.

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The other year mentioned, 1991, when the CFNAI dropped below –0.70, was the year of the 1991 recession and bear market. And then there was 2001, and 2008 shown in the Fed’s chart at the top of the post.

So I don’t understand why investors don’t pay more attention to the CFNAI Index.

Has correction ended or not?

The global rally off the June low ran out of steam in September, but global markets bounced back with big rallies last week.

Did it mark the end of the correction, or was it only a brief bounce off the short-term oversold condition?

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We believe our technical indicators (not shown) have the answer.

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Timer Digest for our ranking of #2 Long-Term Stock Market Timer in their current issue!

RestlessBoomers.com for featuring my article about ‘defensive stocks’ on their website. 

Subscribers to Street Smart Report: There will be an in-depth “Markets Signals and Recommendations’  update tomorrow in your secure area of the Street Smart Report website.

Non-Subscribers: We have updated the sample issue of the newsletter to a more recent issue you might find interesting. Click on link to sample newsletter in right-hand column.

Yesterday in the U.S. Market.

The blue chips pulled back some from last week’s big rally, but the more speculative indexes closed up again.

The Dow traded in a range of 90 points, and closed down 42 points, or 0.33%. Volume was a bit light, with 0.6 billion shares traded on the NYSE.

The Dow closed down 42 points, or 0.3%. The S&P 500 closed down 0.2%. The NYSE Composite closed down 0.3%. The Nasdaq closed up 0.3%. The Nasdaq 100 closed up 0.5%. The Russell 2000 closed up 0.2%. The DJ Transportation Avg. closed up 0.7%. The DJ Utilities Avg closed up 1.2%.

Gold closed down $2 an ounce to $1,749.

Oil closed up $1.22 a barrel to $86.67 a barrel.

The U.S. dollar etf UUP closed up 0.1%.

The U.S. Treasury bond etf TLT closed up 0.5%.

Yesterday in European Markets.

European markets closed down yesterday. The London FTSE closed down 0.6%. The German DAX closed down 0.2%. France’s CAC closed down 0.8%. Greece closed down 0.1%. Ireland closed down 0.4%. Italy closed down 0.7%. Spain closed down 0.4%. Russia closed down 0.9%.

Asian Markets were mixed Sunday night and again last night .

Among individual markets last night:

Australia closed up 0.7%. China closed down 1.3% (at another new low). Hong Kong closed down 0.1%. India closed up 1.6%. Indonesia closed down 0.9%. Japan closed up 0.4%. Malaysia closed down 0.7%. New Zealand closed down 0.1%. South Korea closed up 0.9%. Singapore closed up 0.3%. Taiwan closed up 0.3%. Thailand closed up 0.5%.

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Markets This Morning:

European markets are off earlier highs and now mixed. The London FTSE is up 0.3%. The German DAX is up 0.5%. France’s CAC is now down 0.1%. Spain is down 0.2%. Greece is down 0.4%. Italy is down 0.3%.

Oil is down $.21 a barrel at $87.53.

Gold is down $3 an ounce at $1,746.

This Morning in the U.S. Market:

This week will be a fairly heavy week for potential market-moving economic reports, including the Chicago Fed’s National Business Index, Durable Goods Orders, Consumer Confidence, New Home Sales, another revision to 3rd quarter GDP, etc. To see the full list click here, and look at the left side of the page it takes you to.

Yesterday’s reports were that The Chicago Fed’s National Activity Index unexpectedly fell from 0 in September to –0.56 in October. The more important 3-week moving average also dropped to –0.56 in October from -0.36 in September. And the Dallas Fed’s Mfg Index unexpectedly fell to –2.8 in October from -1.8 in September, much worse than the consensus forecast of an improvement to +2.0.

This morning’s reports are that Durable Goods Orders were flat in October after a big increase in September, but the number was better than the consensus forecast of a decline of 0.4%. And the Case-Shiller Home Price Index showed that home prices were up again in September for the 6th straight month, rising 0.3% in September, after rising 0.8% in August. Home prices are now up 3.0% from a year ago, but still 30% below the levels of 2006.

Still to come are Consumer Confidence and the Richmond Fed Index, both of which will be released at 10 a.m.

The early morning indicators actually weakened fractionally after the reports, worries about the fiscal cliff still dominating.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 25 points or so in the early going this morning.

To read my weekend newspaper column click here: Reasons to be Bullish – At Least For a While!

Subscribers to Street Smart Report: There will be an in-depth “Markets Signals and Recommendations’ update tomorrow in your secure area of the Street Smart Report website.

I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.

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