Blog Post On: 2/20/2010
Last week we noted that there were bullish technical factors showing up in the markets. Technical factors are still bullish. There are underlying economic issues shown on the MTR Economic Model (MTR-EM) that raises a concern for the coming months.
Just for clarification, the MTR-TM back-tested returns are from holding a trade from one signal to the next without stops. Traders should always use stops and would have been stopped out of short positions prior to the market up call on 2/17.
MTR-TM: Market up signal fired on 2/17/2010
Major Indexes: All major indexes are in an uptrend. As noted last week two of the three major indexes broke the downtrend and were moving up.
ADLine: The NYSE and NASDAQ Advance/Decline Line (ADLine) have all moved up with the indexes. This supports the uptrend.
MTR-EM: The MTR Economic Model shows that economic conditions that support consumer spending has deteriorated further.
Year over Year (YoY) real-wages (Green Line) are down almost -8% compared to last year. Secondly employment levels (Blue Line) are down further.
The primary concern is the continued deterioration in real-wages. Even if unemployment levels are high, if real-wages are up YoY consumers will spend and this will support economic growth and stock prices follow. The MTR-EM shows that consumer spending will slow since YoY real-wages have fallen substantially.
The MTR-EM can be seen as a leading indicator of what can be expected in 3 to 6 months in the market. Since the MTR-EM has continued a downward trajectory it ties into the outlook from Ned Davis Research that the market will trend downward in Q3.
