Macro Economic LevelTrading Plans
The goal of the economic level is identifying the position in the macro-economic business cycle for the next 12 to 24 months. This is essentially an estimate of future Gross Domestic Product levels (the output of an economy). In an expanding GDP environment, certain sectors do well, while others do relatively poorly, even though they will still see expansions in value. The sectors which usually do well are industries where people can splurge, called “discretionary”. In contracting business cycles, the discretionary sectors do badly while requirements for living retain their value. Even in an economic depression you still need electricity, water, food, heat, gas, etc. Things you don’t need are excessive.
By using economic indicators, you can determine in advance if an economy is likely to increase or decline. This helps inform you if you’re in an expanding or declining economic environment. As the economic indicators get stronger after a recession, you’re doing better. If the economic indicators get weaker, you’re possibly heading for a recession. These indicators come in three categories, leading, coincident, and lagging.
Leading indicators occur well before GDP releases, sometimes even over a year. These indicators predict GDP values in the future. For Americans, the leading indicators most widely used are the Yield Curve, Manufacturing and Non-Manufacturing Purchasing Manager’s Index, Consumer Sentiment, Business Sentiment, Building Permits, Composite Leading Indicator Indexes, and Unemployment. Employment leads only if unemployment is rising, firms like to layoff in advance of declines in profit. Projections from leading indicators should be noted but not immediately acted on.
You need to see leading indicator trends confirmed by coincident economic indicators, which either barely lead or coincide with the economy itself. You know you’re right if you see leading indicators being confirmed by coincident indicators. Coincident Indicators include the Non-Farm Payroll (which includes the employment rate, but other useful data like hours worked in each sector and income per manager and workers below manager rank), Durable Goods and Shipments, Income Reports (Personal Income, Personal Savings, and Discretionary Spending), Industrial Production, and Initial Jobless Claims.
The final category is lagging indicators. This category of indicator starts very late in the economic cycle. By the time you see these indicators, it is too late to act on them, the market has already moved in their direction. For Americans, these consist of Real GDP, the Unemployment rate (if decreasing), Retail Sales, and finally changes in the stock market. By the time the market adjusts to an economic trend it is obviously too late to act on that trend.
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International Economic Analysis:
- Major Currency Economic Summaries
- Performance of Major Imports and Exports
- Mandates of Central Banks versus Expectations
- Performance Indexes of Major Economies
- Economically Correlated Currency Projections
- Large Funds Currency Sentiment Readings
- List of Technical Indicators to Look For
- Occasional: Foregin Exchange Technicals Markups
American Markets Analysis:
- Summaries of American Economic Structure
- Performance of Major
- Federal Reserve Mandate versus Expectations
- Performance Indexes of U.S Economy
- Economically Correlated U.S Dollar Projections
- Large Trading Fund Index Sentiment Readings
- Market Wide Earnings Versus Valuations
- Fundamental Ranking of U.S Business Sectors
- Best and Worst Future Consensus Estimates
- Occasional: Firm Fundamental Strength Report
- List of Technicals to Look for While Trading
Investment and Finance, Serviced by Amazon
A Concise Guide to Macroeconomics, Second Edition: What Managers, Executives, and Students Need to Know
A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market
Algorithmic Trading: Winning Strategies and Their Rationale
Alternative Investments: CAIA Level I (Wiley Finance)
Alternative Investments: Instruments, Performance, Benchmarks, and Strategies