FYI | May 19 2010
By Rudi Filapek-Vandyck
The latest market update by BTIG Chief Market Strategist Mike O’Rourke includes a price chart suggesting the S&P500 index in the US is poised to put technical support to a test at 1100. At the overnight closing level this is only 20 more points away.
The same market update also includes another chart showing a clear divergence during the overnight session between the US dollar and US equities. This chart really sums it all up: as long as the euro remains under the pump all speculation about when and whether risk assets will be able to find a bottom remains just that; speculation.
Meanwhile, market bears such as Glushkin Sheff's strategist David Rosenberg are enjoying their moment in the sun.
Rosenberg has again grabbed the opportunity this week to reiterate his message to investors: time to wade into the risk pool is when the US ISM Manufacturing index is at 30. The time to scale out is when the index hits 60 – which happened last month.
With the US Fed's Empire State manufacturing survey dropping from 31.9 in April to 19.1 this week, Rosenberg sees more and more evidence pointing towards a slowdown in US manufacturing, and the economy overall.
The latest update for the Empire State manufacturing survey represents the lowest level in four months and the steepest monthly decline since December 2009, highlights Rosenberg.
In addition, one of his other pet indicators, the ECRI leading index, appears to be painting a similarly sobering outlook.
For the week ending May 7, the ECRI leading index fell 2%, which is the largest fall since the week of December 5, 2008. The level for the index is now at 132.00, the lowest level in 10 weeks.
The smoothed index also continues to slow down, now at 12.2% for the week, marking a deceleration from the 12.7% pace the prior week and well below the near 30% pace recorded back in early October 2009. This index, points out Rosenberg, is now running at a 40-week low.
His message to investors: “Just as the coincident indicators are rising (employment, production), the leading indicators are rolling over. Do not drive looking through the rear window – it’s time to take risk and cyclicality off the table.”
