Tuesday, May 31, 2011

Chicago PMI and its leading indicator

So if you get a lot of orders for new products you are likely to buy inputs, hire people and produce.
If you have a lot of inventory it is likely you don't need to produce as much. You just need to deliver.

What happens if the level in orders reduce while your level of inventory increases?
It doesn't bode well for the future, right?

So here are two charts.
The first is the Chicago PMI, which is back to 4Q09 levels.
And below is the (New Orders - Inventories) index which some fellas say works as a leading indicator.

That one is back to 4Q08 levels, right when Dick Fuld stopped dancing.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

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