Double Dip Countdown

A double-dip recession is unusual. We may have had only one - in 1980 and 82. We had a double dip depression in the '30s, but the dips were five years apart, and the whole period is more of one slow slog of government life-support and a moribund private sector than a happy recovery and a fall back. It shows up in this unemployment chart - we never got employment back to pre-Depression levels until after the war. The question right now is will we have a double-dip in the Great Recession? 

 

The buzz to start this week was of the second coming of the double-dip, set off by David Rosenberg. What spooked him was the ECRI index falling below zero (see next chart, courtesy Pragmatic Capitalist). When ECRI drops below -10 (from its current -3.5), it has signaled a recession 100% of the time. Rosenberg ranks the odds at 80% of the double-dip. ECRI's indomitable leader continued his optimistic take, saying that while the drop "assures a significant slowing in US economic growth in the coming month, the recent weakness has not lasted long enough to signal a new recession threat." Others have backed his stance, saying it is premature to call the double dip or this is not a recession signal but a reaction to the sharp rise off the bottom. Fair enough, but the countdown has begun.

For the stats minded, here is a look at its record of prediction. The recent decline is the largest before any prior recession. Also, ECRI tends to be late in predicting a recession. Other leading indicators are also rolling over, such as the Conference Board LEI, which at least shows a slowdown:

 

Morgan Stanley holds out for just a slowdown, arguing primarily that global growth is rebounding. Indeed, there is some glass-half-full optimism even over in Europe, where the UK just raised GDP estimates for next quarter - ironically due to the Euro crisis and a cheaper Pound - but lowered their 2011 estimates. The same goes for Germany and a cheaper Euro, where the expectation is it helps more than austerity in Club Med hurts. Still, the OECD indicators for the global recovery are all rolling over to slower growth. Peaks are evident in the US, Japan and Germany, and are now showing up on the UK, France and Italy. Worse, China too is rolling over:

 

The poor retail report Friday also casts doubt on the recovery. It was the biggest decline since last September, and if we remove Cash4Clunkers, the biggest since March 2009, over a year ago. It may be that it reflects distortions from the first-time homebuyers credit, which caused a surge in April and thus may have led to the largest sector drop, a drop of 9.3% in May of building materials; but other sectors were down as well, including general merchandise and clothing. Auto sales are also looking weak, as fleet sales are up much more (32%) than individual sales (13%) in the first part of 2010, leading George Pipas, an analyst of Ford, to opine that consumers are back to deferring big purchases due to economic uncertainty. Savings had dipped a bit, but savings has gone back up, suggesting that a flood of tax refunds and other government checks may have temporarily boosted retail around April 15. That is now over. 

 

If we look at other GDP factors, two elements which had boosted GDP are now lagging: the inventory surge is now over, and State spending from stimulus is also on the downswing. State sales taxes are also likely to shrink, as we see in Texas, putting further pressure on State spending. The impact on GDP may be a 1/4 point, and comes on top of a drag of 1/2 point from the lower Stimulus and a further drag from the loss of the 1.3% inventory adjustment on Q1, making Q2 in the range of 2% lower than Q1. 

John Hussman gives us five leading indicators of a coming recession:

1. Widening credit spreads (check!)
2. Flat yield curve (almost there!)
3. Falling stocks (check!)
4. Moderating ISM growth (check!)
5. Moderating employment growth (check!)

The countdown to the double-dip is on. 

Comments

[Mamma Boom Boom]

Double-Dip! That's so cute. How about with a cherry on top?

[Account Deleted]

Dow jones Breaks out shown in hourchart. The hour should close above the horizontal line for bullishness to sustain
http://niftychartsandpatterns.blogspot.com/2010/06/dow-jones-breaks-out.html

[Rally Time]

No one believed in the Monkey.......Believe!

[JT]

So many people here looking down as usual, with everyone discounting the recent successful re-test of 1040 SPX.

[DG]

So many people here looking down as usual, with everyone discounting the recent successful re-test of 1040 SPX.

I don't know what blog you think you are on, but actually most of the regular posters are at least short-term bullish or neutral, with one notable exception.

[upstart]

Fascinating...as Carl Futia gets more bullish (even though this "midpoint correction" of the bull market, as he calls it, has hardly been longer in time than the other corrections since the 2009 bottom), Jim Rogers is short (mainly tech stocks and emerging markets because they went up the most). The 3 strong monthly cycles I track will come together in the same month for the first time in 3.5 years, so I continue to expect another decline in the multi-month correction/4-yr. cycle after this bounce exhausts itself. There's even a couple patterns of small tops that calls for a bounce that would top in June. There was a major turning pattern that occured in April that should mark a top that likely isn't exceeded for MANY months.

[Mamma Boom Boom]

SHORT. One minute before the close. Actually, it's just a short term scalp. I normally don't do that, but it just seemed too obvious. We'll see.

[Account Deleted]

Dow jones end of day analysis
http://niftychartsandpatterns.blogspot.com/2010/06/dow-jones-end-of-day-analysis_16.html

[JT]

While Neely is still struggling to figure out whether we are in "c" or "d" ... Carl Futia has once again nailed the move off the recent 1040 low!

[da bear]

so basically we basically splurged on the New Deal BEFORE the start of the summer 1930 decline?

GREAT!

da bear

[Wave Rust]

where da bear wave counters?

counting must be hard when you are being squeezed, eyes are bulging, out of breath.

just buy the dip tomorrow.

wave rust

btw, sure looks like a wave 2 to me
still got green lights everywhere, except bonds and USD.

like catching tuna in a bathtub

[JT]

The market continues to suck shorts in and climb a new "Wall of Worry". Euro, FinReg, BP, etc.

Funny how all of the Bears who have embraced P3 on various Elliot Wave blogs (not just this one) don't seem to understand how the market really works, or why the DAX is only 2% off its 52 week high.

When the blogosphere was so universally calling for a "cluster" of 1-2's along with "Hot Hand" Hochberg, there was nothing more to come of that prediction than one great big cluster $&%&!!!

It's gonna be one very long hot Summer for all of the perma-bears. This is only the start.

[da bear]

JT,

I wouldn't think that this rally could last for more than a few weeks, but of course, stranger things have happened. I think oil needs to get up to about $90 and gold needs to get up to about $1,305 before the BIG THREE down can begin.

This current wave 2 could retrace nearly all of the decline from the April highs. ... and it might take it's time in doing so...

da bear

P.S. The DOW made it's first of a double top in July 2007. Oil topped in July
2008 so a July peak for wave 2 is possible.

[DG]

While Neely is still struggling to figure out whether we are in "c" or "d" ... Carl Futia has once again nailed the move off the recent 1040 low!

Only 300 more points to go and Carl will catch up to Neely's Weekly trade recommendations over the past four years.

Run, Carl, run!

[DG]

It's gonna be one very long hot Summer for all of the perma-bears. This is only the start.

Wow, a "before-the-fact" actual honest-to-goodness market call from you. I didn't think you had the balls to do anything but show up after the fact touting your alleged "trades".

Now, let's see if it pans out.

[JT]

"I don't know what blog you think you are on, but actually most of the regular posters are at least short-term bullish or neutral, with one notable exception." - DG

Sounds like you are bullish. What stocks do you like here?

[DG]

Sounds like you are bullish. What stocks do you like here?

I could see the market continuing to rise a bit more. I don't focus on individual stocks at all, though. I don't think you can apply wave theory to them and I don't trade on anything other than that, really.

If we take out 1150, though, I'd be kinda surprised, although I don't have the same wave count as the "Big Tease" Yelnick's posted about.

[David]

This is an honest question for the board:

Can anyone give me a logical argument for a new secular bull market?

I really don't know how to approach a market like this with my 401k. I've been in bonds (PTTRX) since 2006 along with a fund that is overweight gold (NVORX). While I avoided the 2007-2009 crash, I also haven't taken advantage of upswings the way I should have either so its kind of a washout. My account balances are at all time highs but that’s not saying much either since flat for 4 years.

The only arguments I have heard from bulls are either some technical chart pattern or some backward looking statistical model.

The arguments of Karl Denninger and this site are sobering since they appear to be grounded in common sense and reasoning. I see nothing fundamentally has changed in the economy and it appears to be getting worse. I'm going to be loosing my job in July so that probably has skewed my outlook.

[JT]

"Only 300 more points to go and Carl will catch up to Neely's Weekly trade recommendations over the past four years." - DG

Quite frankly, I don't think that that would be an honest comparison since Carl Futia is essentially a "daytrader". It's night and day difference.

[min]

I hate missing days like this, spearing Tuna in a bathtub is definitely my kind of trading environment

—alas work before pleasure, but there's always tomorrow!

I didn't see any of the market action in real time. Besides the wave signatures anybody notice any pecularities today?

Any opinions for tomorrow based on how today felt?

[Michael]

"The arguments of Karl Denninger and this site are sobering since they appear to be grounded in common sense and reasoning. I see nothing fundamentally has changed in the economy and it appears to be getting worse. I'm going to be loosing my job in July so that probably has skewed my outlook." - David

Given that you will be losing your job, you probably should stay in cash equivalents and make sure that you have a rock solid medical policy in hand. If you did not have some portion of your portfolio invested in stocks and did not catch the move off the March 2009 lows, then you probably should not be putting any significant monies to work at this level.

As for the markets, they are very good in defying "common" sense type arguements given that when they are liquidity driven (such as this one) they are quick to discount any perceived negative fundamental economic news.

The latter is a severe fundamental mistake that most people who are "new" to the financial markets, make.

[Roger D.]

Bull Trap....down 200 tomorrow?????

http://www.screencast.com/users/parisgnome/folders/Default/media/345130be-316d-4c93-a207-7c2545196174

Roger D.

[HighSchoolKid Trader]

Yo' Minster!

Took 737s chart from yesterday and ran with it. Laid low (didn't want to jinx nuttin')ands watched the money roll in on my QQQQ position all day long. 'Twas a knarly day you missed indeed.

I say 'morrow there's a dip most of the day at the very least. Last couple hours were real sluggish with low volume and plenty o' divergences at least on the Q's.

At least this is what I'm hopin' fo' since I closed the long and went short at close. Boom's also done the same i think.

Peace out Minster!

[min]

Thanks Roger and HSK Trader.

Apreciate both of your responses.

[yelnick]

David, there are two arguments for a new bull market:
secular bull started mar 2009 (Tony Caldaro) driven by a real recovery happening albeit slowlycyclical bill driven by liquidity which paradoxically will continue if we double dip or threaten such

On a secular bull, Tony derives his view from wave structure, which I have commented on and disagree with - we have not been in an impulse up under Neely rules (no extension) nor under Prechter rules (no alternation).  While EWI countd a triple zigzag, there are other ways to count this including as a large skewed triangle. Neely's count remains a wildcard (hard to work with it when Glenn himself says it is too unpredictable right now to count accurately), and even though it could lead to Mar2009 as a major bottom it does not lead to a new bull market. Instead, a corrective range for a considerable period. 

On a cyclical bull within a larger bear market, this seems to fit the whole period since 2000. So far, two cyclical bears and one cyclical bull. The level of rise of the Hope Rally makes it a candidate for a second cyclical bull, and from the wave structure we have not yet confirmed the end. The whole move off the Jan high could be breaking as an expanded flat (higher B wave) or as a Neely triangle. The drop off Apr26 is not crisply an impulse down, since the Flash Crash still is easier to count as a "3" and not a "5", and the Flash Retest to May25 counts as a "5", but may have ended a flat correction (3-3-5 structure)since Jan. 

If you look beyond wave analysis to fundamentals, the case for a secular bull rests on the massive global stimulus having bridged us across the Valley of Depression and back to  growth, albeit New Normal slow growth. The recovery seems to have started like a V but got sent off the rails around the time ObamaCare came out. Since this is a global recovery, an interesting question is how a purely domestic law could screw up the whole recovery; but it reflects the slowing of the US as an economic driver of growth, and comes with the pending tax increase in 2011 and the continued credit crunch that the financial reform is unlikely to ease. US catches cold, the world gets the flu. So my concern with this argument is the data do not support the bridge having made it across the valley. Instead it has turned into a pier that we might fall from down into the abyss. 

The fundamental case for a cyclical bull is easier to see: the massive stimulus (fiscal, monetary) has enabled a liquidity-driven market, and as long as that continues, so will the Hope Rally. It can go on for a lot longer than the shorts can stay solvent. The end of US QE in April may have been the spark that lit the Flash Fires in May. The Fed today discussed how the apparent GDP slowdown means they have to consider returning to extraordinary measures, specifically extending the low rates plus re-initiating QE. Another year of QE and low rates, and even if the real economy remains in the abyss, the stocks may continue to meander northward on diminishing volume and increasing incredulity. 

[RT]

I hate missing days like this

The rally monkey told you it was coming at the exact bottom (within one day)

http://yelnick.typepad.com/yelnick/2010/06/china-factory-suicides-signal-end-of-cheap-labor.html?cid=6a00d8341c563953ef0134838f87f1970c#comment-6a00d8341c563953ef0134838f87f1970c

[Mr. Panic]

Today is 27 trading days from the flash crash low. Will numerology trump Fibonnaci?......No extreme cumulative tick yet? Every 60 minute bar was up today on top of a five day rally. Look at those final spikes on May 27 and June 2(??). Seasonality is very negative now into the end of the month. $nyse is a few days away from doing a death cross and well below the low of the first week of the year (as the Dow and SP still are) SP rallied to the bottom of the start of the area of gap waterfall on May 20th at 1115.

[Wave Rust]

min,

intra-day overbought, dip tomorrow, maybe even a plunge, but up for another week. spx 1200 targeted by next wednesday

then more after that.

a plunge!!!??? call obama, he's gonna save us all. tell him i want all my trades to be winners. any losing trades are bush's fault and BP's fault.

"Obama is the worst environmental disaster the world has ever known."

wave rust

the most bullish markets are during the worst economic times with really bad Federal policies.

So, rejoice! Obama is the worst president with the absolutely worst economic/political/philosophical policies, He and his adviser putrids are just EURO-MARXISTs !!!!!!!

So, it's a bull party. But, do watch out for that beanball coming at your head later this summer.
Just DON'T buy anything Obama supports ,,,, he's the kiss of death.

[min]

"The rally monkey told you it was coming at the exact bottom (within one day)
Posted by: RT | Tuesday, June 15, 2010 at 04:44 PM"

Saw the rally monkey and heeded it's warning —thought it was very entertaining BTW.

That's not the issue. I've been trading the rally successfully in small spurts but have been extra busy the past couple days so not as much as I would like.

It's my uncompromising rule not to trade countertrend moves unless I'm at the helm or happen to have a position that is deep in the money.

Today was one of those cruise control days when the rule "got in the way" but will continue to stick by it.

Keep that rally monkey coming!

[min]

Thanks WaveRust. I'm getting my bearings back thanks to all you guys. Seems to jive with what I'm seeing as well. Hopefully can start a trade and turn it into a swing trade so it can keep going while I'm away. The day trade strategy works well for me but not with my current schedule. Thanks again everybody.

[Wave Rust]

Duncan,
"The end of US QE in April may have been the spark that lit the Flash Fires in May. "

http://www.youtube.com/watch?v=6POmPgeLW2U

We did NOT start the fire.
-----------

imo, David, buy blue chips and tech at the year end lows. and then really hang on for 20+ years.

[Wave Rust]

David,
if you are under 40+/-, you haven't seen bad times

suggest studying newspapers and public moods in the 70's and through the first half of the 80's

especially at the '74 low and the '82 low ,,,, nonbody believed the market was bullish until late '84, then they fell into apathetic sleep until oct. '87. then the same evil market myth returned ,,, of course, it was another huge buy.

over and over, it happens

wave rust

sorry about your job.

Obama seems to want to achieve full employment by employing all unemployed people at a Federal job.

[twitter.com/DrBubb]

"Rosenberg ranks the odds at 80% of the double-dip."

Great. Some reality is beginning to seep into the mainstream. But second leg down, is going to be worse than most economists are now anticipating. It will not be a "W", it will look more like a "y" with the second drop bigger than the first, and no quick recovery.

I have been saying this for months, and even wrote an article about it back in Oct.2009 / "The Y-Shaped Economy" : http://financialsense.com/fsu/editorials/hampton/2010/0210.html

The article warned:
"My expectation is that the next economic downturn will come quickly starting about mid-year, and those who fail to prepare will be blindsided, and suffer a very large loss of wealth. The time to make preparations is when confidence is high, and the cost of preparations is low, because fear has receeded. After a strong nine months rally in global stocks (which by the way, I forecast back in March as the market was turning up), there is now widespread denial of problems, and huge complacency. Preparations can be made now, and hedges put in place, at a low and bearable cost."

[MHD]

Yelnick.... interesting stats on Wave 2's. Any stats on wave 4's?

[yelnick]

MHD, yes, I have more stats.

waves 4:
15% retrace 23.6% to 29.3%
60% go 29.3% to 50%
15% go 50-61.8%
10% go more than 61.8% but that usually means its is not a wave 4

The most common retracement is 38.2%.

The last rule (fewer than 10% go beyond 62%) the recent count suspect since the purported wave 4 (the Flash Bounce) went from 1056-1174 or 118 pts, and it corrected a 153 pt drop - more than 62%. If you measure the Flash Crash end point from the truncated fifth around 1109, it works: about 1209 to 1109 or 100 pts down, and 65 pts back.

No wave 4 goes less than 23.6%, or something else is going on. If it stops between 23.6% and 29.3%, then the timing must work out to some fibonacci or repetition ratio (related to sq root of 2).

[MARKHOLSCHER]

thanks Roger D most excellent aapl chart. this chart will make me some monnnnnnnnnnnnnnnniiiiiiiiiieeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee

[KRG]

David: Sorry about the job.. Hope you will get a better one or better still hope you don't need one..

There is no fundamental logic for the asset markets to go up other than simply the excess liquidity. But eventually this also may not mean much for the western markets as they could easily become another Japan unless there are serious attempts to get back to the good old virtues at macro level.. saving, less of "creditism" and more of productive investment and growth with quality etc.....

Technically, in the bigger picture almost all EW based theorists seem to treat this as major B, hence to be followed up a major C with new lows, or in a better case scenario morph into a large triangle... A main reason for not treating March 09 as end of C and the current move as fresh bull market seems to be that the bounce is not impulsive (or impulsive enough!)

Agree with Michael; cannot start building portfolio here. Stay in cash and perhaps look for EM equity on next correction (there could be a serious case for decoupling! Indian equity for instance may not correct more than 30% from here)...Some of the markets that corrected strongly already could be candidates for part deployment (e.g. real estate in Dubai or USA?!). Technically, you may also like to get out of gold fund on the next leg up.. And from bonds if you get say 2-2.5% on 10 yr US treasury

“When you want something, all the universe conspires in helping you to achieve it.” - Paulo Coelho

All the best and Have a good one

[Chabazite]

In response to David's question about the new secular bull market - great post, Yelnick!

[trendlines]

SPX breakout as suggested:

http://trendlines618.blogspot.com/2010/06/s-short-term-range-breakout.html

[tony]

Hi Yelnick,

If I have missed it then sorry (maybe just direct me to the link)
Where are the stats on wave 4's coming from? Is this a personal compilation based on your own wave counts? Over what period? what about time considerations? so many questions about that post!!!!!
Any clarification would be appreciated- could I suggest this as a future post (especially in regards to waves 2 and 4)?

On another issue- I don't think anyone has mentioned your great coverage regarding the AUD a few weeks ago. What a fantastic call! (I must add I didn't agree with it at the time).

all the best

[DG]

Quite frankly, I don't think that that would be an honest comparison since Carl Futia is essentially a "daytrader". It's night and day difference.

Posted by: JT | Tuesday, June 15, 2010 at 02:53 PM

How? If I make more money with fewer trades, in most industries that's called "productivity".

If I had chosen the "Carl Futia" way over the "Neely Weekly" way 4 years ago, I'd be less wealthy. My broker would probably be happy, since I would have made ~1000 trades (1 per day for 4 years) instead of the 70 I would have made with Neely.

Anyway, I'm sure there are others who've also made more money than Carl over that time period, so this isn't Neely-specific. It's just that you never miss an opportunity to go after Neely while forgetting that he's just plain better over the longer-run than Carl.

[Oraclelurker]

Futia was foaming at the mouth bullish from sep 08- end of oct 08. To me getting that period so terribly wrong isn't like getting any old intermediate term trend wrong. Of course trading and forecasting are two very different things but I am honestly skeptical about his trading record as well. I actually think he is correct about the market moving higher in the short term and if he is then more power to him. The h&s scenario is way too obvious and it seems as though the market is going to power it's way to a split top at 1170 to pressure those who get positioned for it around 1140-1150.

[Wave Rust]

yelnick,

thanks for that data on 2's and 4's. it's a little different than what i have observed but in the same ballpark.

what have you or zoran, etc. compiled for B waves?

btw, as a 2 wave, the drop from April highs qualifies (30% of the rise from March '09).

The reason I see more down in the months ahead (and why the intermediate degree of Caldaro looks better) is that the dow's recent low went 'too far' when figuring from the setup before the top. It went to an extreme that has a high percentage of producing another extreme measured down move, off of the B wave set up's high.

that means the B wave of 2 is at hand and will play into late July/early August, then the C of 2 to new lows, maybe spx 940 (50%) or the 78.6% at 790.

if the 2 is to be a deep one, and, then its B only gets to spx 1150 insted of a higher top at 1170 to 1200, the year end low will probably settle near spx 750

spx 790 would probably have only the most stalwart of bulls buying, and 750 will leave only a phone booth full of bulls. but the B will tell alot about the C's target. thats the reason for the B stats inquiry.

of course, a blind & bullish slant could say this 2 is over, but imo, it isn't yet, until spx 1230 is topped with some real momntum.
wave rust

[Account Deleted]

Dow jones support and resistance line in chart
http://niftychartsandpatterns.blogspot.com/2010/06/dow-jones-support-and-resistance-lines.html

[DG]

Of course trading and forecasting are two very different things but I am honestly skeptical about his trading record as well.

Carl is at least forthcoming in his track record, but I have no idea how much risk he is taking on to generate the 80%+ returns he's claiming.

My main concern, always and forever, is risk.

[Edwin]

Carl screens posts. He rejected mine when they don't fit his script/agenda. I stopped trying and will not post again to his blog.

[Roger D.]

This is a fine day for the top of tops.

Roger D.

Still short!

[JT]

"Anyway, I'm sure there are others who've also made more money than Carl over that time period, so this isn't Neely-specific. It's just that you never miss an opportunity to go after Neely while forgetting that he's just plain better over the longer-run than Carl." - DG

For someone that prides themselves in being so incredibly "quantitative", I'm at a loss as to why you would feel so righteous in comparing "apples" to "oranges". No one in their right statistical mind would compare a "daytraders" results with that of someone that is issuing trading recommendations on a weekly basis.

I am at a total loss as to why you are unable to fathom that.

[JT]

I could see the market continuing to rise a bit more. "I don't focus on individual stocks at all, though. I don't think you can apply wave theory to them and I don't trade on anything other than that, really." - DG

Sounds like your exclusive committment to Wave Theory keeps you from taking advantage of tremendous money making trading opportunities in individual stocks, especially the high beta, high volume names.

Why would anyone do something like that? Are you not that active of a trader? How many times do you trade per week?

[yelnick]

Wave, I don't think Zoran ever compiled stats on B waves since they are all over the map. I will check next week.

As to this being a B after a 5-wave A up, perhaps, but a very complex count. If you instead count the 3 waves up to Jan as an abc (or wxy), this could be all part and parcel of an expanded flat since Jan, and we would be in wave C. The implication is we don't go any lower and hit new highs in the C wave later this summer.

Neely counts the drop to Feb5 as a 2d X wave, and then has us in a B triangle (A was the run from feb5 to apr26). The implication is also a higher high, but perhaps not until 2011.