CHARTING INDICATORS: Moving Up Before They Head Down
16 Dec 16:41
By Stephen Cox, CMT
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Many observers tend to think of an economic indicator
as a pulse on a calendar - something that happens regularly, like a cuckoo out
of a clock. In this context an "up" event, by itself, is typically good, and a
"down" event is typically bad.
The point is that indicators, like any data, are sequences of events. They
have a drift, if you will. They trend, as market technicians say. In this
alternative context, "up" isn't necessarily good. It depends, literally, on
what the indicator is up to.
November housing starts, to be released this week, is an excellent case.
Starts are likely to be higher, but they're also likely to move up to
technical resistance - a possible turning point. And that just might be the
setup for a potentially serious decline to come. Ditto, November industrial
production, which is expected to be considerably higher on the month.
November consumer price index and its core index (less food and energy) will
be released Tuesday at 8:30 a.m. EDT; the consensus of polled economists is
looking for the CPI to be 0.1% above its October level. November housing
starts will be released Tuesday, also at 8:30 a.m. EDT; the consensus expects
starts of 1.68 million compared with 1.60 million in October. November
industrial production will be released Tuesday at 9:15 a.m. EDT; the consensus
favors a 0.2% increased, well above October's 0.8% decline. Industrial
Production went over to the North American Industrial Classification system on
Dec. 5.
The final third-quarter gross domestic product will be released Friday at
8:30 a.m. EDT; the consensus is expecting a 4.0% increase.
In fact the consumer price index could easily be a surprise, one way or the
other.
I estimate that the November CPI, if it does come in higher on the month,
will be 0.3% above the October reading. Butthe chart also shows that the
prospect of a higher CPI can't be assumed without qualification. That's because
technical momentum has been slowing markedly since September even though the
index has been edging higher. This divergence between falling momentum and
rising index is a bear signal, all else equal. If a dip is recorded this week
then the CPI will be 0.3% lower on the month.
If November housing starts are higher on the month then a 1.1% increase to
1.621 million is likely. That would be just above the consensus expectation of
1.600 million.
But if that sounds good, it's also a long shot.
That's because the sharp October dip, to 1.603 million from 1.810 million in
September, brought the indicator below the 13-month exponential moving
average, and that's a signal of weakness. Housing starts may be spared a
downtrend in coming months if they bottom in November at 1.590 million. But a
November reading below 1.590 million is liable to come in as low as 1.529
million. That development would be a serious technical breakdown.
Technical analysis suggests that November industrial expectation will
increase on the month by as much as 0.4%. That increase, although considerably
better that the consensus expectation of a 0.2% increase, would nonetheless
land industrial production squarely on technical resistance and set it up for
renewed losses going into the first quarter of 2003.
The danger is a November industrial production figure that 0.1% lower on the
month, or worse. In that case, the indicator may lose 2% of its October value
before the end of next year.
The chart agrees with the consensus expectation of a Q3
4.0% higher on the quarter.
To read the Charting Markets technical newsletter go to
djnewswires.com
For more technical analysis see: Dow Jones Newswires, N/DJTA; Telerate, page
4247; Bloomberg, NI DJTA; and Reuters key word search "Charting Markets."
-By Stephen Cox; Dow Jones Newswires, 201-938-2064;
stephen.cox@dowjones.com
(Stephen Cox, a chartered market technician, is chief technician for Dow
Jones Newswires.)
Data by Bridge/CRB
(END) Dow Jones Newswires
12-16-02 1641ET |
