Mapping the pros: composite economic indicators – apr 2017

In today’s post I’ll update the composite indicator heat map for April. See this post for an introduction to the composite indicators and the heat map. I’ll also provide some detail on another of the composite indicators.

Below is the composite indicator heat map as of Friday, March 31 2017.

The composite heat map is telling us the same thing as the top 6 indicators, and the other individual indicators – no signs of a recession on the horizon, which most of these indicator assume means about 9-12 months out. I like to use the composites as a supplemental set of indicators to the individual ones – since usually they are reported with quite a lag. However, there are a few weekly indicators on the list of composites above. Let’s dive into one of the them in detail, the BCI indicator from imarketsignals.

For a detailed discussion of the BCI see this post. Basically, the BCI is a weekly composite of the following economic indicators.

iMarket uses the 6 month growth rate (BCIg) and the distance of BCI from it’s peak (BCIp) as early recession indicators. Here is the latest chart with details on their recession warning triggers. The latest BCI numbers are signaling no sign of an imminent recession either.

The BCI looks a bit similar to my COMP indicator that I used to build an investing system on. What if we do the same with BCI? We can do that. I created three investing systems based on BCI (BCI yr over yr chg, BCIg, and BCIp) and combined it with SPY vs it’s 200 day SMA as a confirming indicator. Using the SPY-BCI(yr over yr chg) produced the best results and the results were similar to the SPY-UI system but not as good as SPY-COMP. But they’re all pretty darn good vs just buy and hold.

That’s it for this month’s composite indicators. No signs of imminent recession are on the horizon. As a reminder, that doesn’t mean the markets won’t go down. Monthly drawdowns of 10-15% outside of recessions are quite common and should be expected.

Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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