ECRI WLI Growth Rate + S&P500 Death Cross

Despite the "Death Cross" in the S&P500, as of today we have heard of no change in ECRI's economic outlook of  a slowdown without a double dip recession as we reported at ECRI Weekly Leading Indicators Widely Misunderstood.

Chart showing recent "Death Cross" for the S&P500:

 Click chart for full size image

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI)

For the week ending July 16, 2010

• WLI  stood at 120.7, unchanged from the prior week which was originally reported at 120.6
• WLI growth fell to minus 10.5 percent from minus 9.8 percent a week ago, its lowest level since May 15, 2009, when it stood at minus 11.1 percent.

This is a chart of the S&P500 (charts + Quote) vs ECRI's WLI from October 1, 2004 through July 23, 2010. 

 Click chart for full size image

Which way do you think the Market and WLI will go? With the stock market up this week, the odds are good that WLI will be higher next Friday.

Click chart for full size image

Make sure you read:

• ECRI WLI vs S&P500 and GDP Growth

Disclosure:  I am long SPY (charts & quote) in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 152% (a double plus another 52%!!) vs. the S&P500 UP a tiny 1.4% vs. NASDAQ  down 3.8%!!!   (All through 6/30/10)

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In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%
For 2010, as of 7/23/10, the explore portfolio is up 3.5% YTD
vs. DJIA down 0.0% vs. S&P500 down 0.1%!

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Death Cross for S&P500 - Chart & Values

On Friday July 2, 2010 the chart of the S&P500 made a bearish "death cross" where its 50-day moving average, MA(50) broke below its 200-day moving average MA(200). 

click for full sized chart

July 2, 2010 Data

• S&P500 Closing Value = 1022.58
• S&P500 MA(50) =  1,111.66
• S&P500 MA(200) =   1,111.74
• Definition of Death Cross Pattern

This "death cross" for the S&P500, last occurred between the 50- and 200-day moving averages in December 2007, shortly after the beginning of the market decline that eventually took the S&P 500 to 12-year lows in March 2009. 

One of the simplest trend following models says BUY when the S&P500 makes a "golden cross" where the 50 DMA crosses above its 200 DMA then SELL when the "death cross" occurs.    This model worked well the last time there was a death cross. 

WARNING: Not all death crosses signal a new bear market and some occurred after the bottom was made. Another problem with this sort of "system" is markets that are range bound can give many signals so you end up selling low and buying high over and over.

For example, the death cross system missed the 1987 bear market, went to cash near the lows but after the bottom in 1987, got back in at a higher level in mid 1988 then lost more ground to "buy and hold" through whip-saw action between 1990 and 1991.

click for full sized charts

Most recent crossings:

More:

• Definition of Golden Cross Pattern
  
• Definition of Death Cross Pattern
  
• S&P500 Charts
  
• DJIA Charts