(this is an update in a series of charts tracking the ECRI WLI since July 2011 and the recession call of Lakshman Acuthan in late Aug2011)
After last weeks surge in ECRI WLI, this week only inched up. This index has now become a project of morbid curiosity in the ability of the ECRI to call technical recessions in light of the purported unblemished track record of the ECRI. Reading the WLI index is childs play assuming it to be both reliable and indicative of underlying conditions as promoted.
– my call at end July2011 that within a month the ECRI might call a recession (at 30Aug they did)
– my assessment in Aug/Sep 2011 that ECRI WLI 120 level was a technical level that was important to break (so far yet to)
– the ECRI tracks an underlying weakness in the recovery to date, given this remains a bear rally until proven otherwise.
– the moving averages shows a period of decay in time and price that ‘might’ end on improvement of true underlying conditions (which it is trying to indicate). No real recovery can be banked, but you buy the dips and sell the peaks until the picture reveals itself better.
Summary (refer chart above) –
– Point 1 is a similar level of refusal in May 2002 during the dotcom bubble, and Point 3 2009 and 2010 recoveries in amongst historically unprecedented monetary stimulus and QE programs.
– Point 1 is interesting in that it is also the 61.8Fib of the dip from 2000 peak; the corresponding level is 123.7, so we have somewhat more naturally crept back to this level. Can we hang onto it?
– Below this local 61.8Fib 123.7 again is bearish into possible failure again (below 120) Only above the 124.5 level is the happy ending that supports all the main stream rhetoric
– Point 2 is post 2002 low and shows a final consolidation below the 50%FIb before confirming a breakout into recovery (or bubble ver2/continuation)
– The current setup into the 124.5 50%Fib resistance level would be a similar lower swing top, down into 120 again (as per Point 2 in 2003) and the strong blue line drawn into the pivot labelled ‘uncertain’, it is clawing back inside the strong black 2SD upward channel
– Moving averages are all you need to tell you this remains a bear rally until it proves strong enough to clear the time and price of MA decays.
– Point 3 show it breaking above this level decisively in 2010 post 06May2010 flash crash and AFTER QE was announced. What will happen this time?
Nothing the media says can convince me of a lack of real underlying strength otherwise, and am not reliant on just the ECRI WLI for sentiment. Next week will be interesting with many market indexes topping, as the response to the entertaining debt debacle known as the ‘Cirque du PIGS’ – Act 1 becomes known. The follow up is of course the remaining Acts with EU periphery increasingly bad debt situations that are desperately waiting for real global conditions to improve.
(note: I do not rely on one singular indicator of economic strength, and do not recommend it. This analysis is part of a more thorough system of weekly health status using 16 indexes and coincides with current weakness as can be depicted by the chart above. You might also be interested in Korean KOSPI and Brazilian BVSPA equity indexes.)
On the ECRI WLI data – I have noticed numerous updates to the historical data occur many weeks later (20-25 weeks). I typically use only the most recent 6-8 weeks in updating my ECRI WLI charts.