October 7, 2024

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Lies, damned lies, and statistics.

"Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: 'There are three kinds of lies: lies, damned lies, and statistics.'"--Mark Twain

The US Bureau of Labor Statistics (BLS) stunned financial markets on Friday when it reported September payrolls rose by 254,000, which was 104,000 or 69% greater than the 150,000 expected by economists. Of course, the monthly BLS employment report is subject to large revisions later, which get much less attention than the headline number. Some observers say the surprisingly strong September payrolls gain is likely to be revised away after the election in just 32 days on 11/5/2024. We’re not suggesting election interference, but even Fed chair Powell previously has questioned the credibility of BLS data.

The BLS also reported wage growth rose to 4% year over year, which is double the Fed’s stated inflation rate target. In addition, the Food and Agriculture Organization of the United Nations reported that their Food Price Index, which tracks the international prices of a basket of globally traded food, rose 3% in September, up from 2.1% a year ago. Extreme weather and climate change policies pushed by the far-left are reducing crop yields, and wars in Eastern Europe and the Middle East are disrupting maritime supply chains. In addition, excess spending and money printing by governments mean that inflation will be a major problem for a long time to come. But instead of prudently managing their excess spending and ending destructive wars, government politicians are actually floating price controls to punish price gouging by greedy businesses--despite the history of complete failure for price controls.

Strongly rising employment and global food inflation sent interest rates higher, with the 2-year US Treasury Bill yield up 5.71% on Friday, its biggest single day increase since March, 2023. This short-term yield crossed above its 50-day SMA, turning the systematic trend neutral.

iShares Core U.S. Aggregate Bond ETF (AGG) price broke down below its 50-day SMA, turning systematically neutral and signaling short-term bearish momentum. Both RSI and OBV confirmed short-term downtrends. Strongly rising employment and global food inflation could mean higher than hoped-for interest rates ahead. While the price of the intermediate-duration AGG notes fell 0.65% on Friday, the longer-duration 20-year bond ETF TLT price fell nearly double that, down 1.23%. TLT also turned systematically neutral from bullish.

“With the Middle East on the brink of all-out war,” according to the New York Times, and in the face of sharply higher interest rates, the S&P 500 stock price index (symbol: $SPX, 5,751.07) rose 0.22% last week to within easy striking distance of its high. Although the long-term price trend remains systematically bullish, stocks remain overbought and overvalued by all historical standards, such Price/Earnings, Price/Dividends, Price/Book Value.

Retail, Financial, and Consumer Discretionary sectors led the way higher on Friday while interest-rate sensitive Real Estate, Utility, Pharmaceuticals sectors underperformed.

War in our world keeps escalating, unfortunately, with no end in sight. War is inflationary because high demand for war materials and labor drive prices up. Although at this point the current raging wars appear to have little effect on the US stock market, history shows that war can be very bearish for financial markets as war escalates.  

As we continuously weigh and measure all the technical and fundamental data, we conclude that a conservative long-term investment strategy with emphasis on preservation of capital is rational and prudent when market risk is high. Speculators and traders who are willing to take a chance on shorter-term market trends should pay very close attention to risk control because short-term trends are fickle and change frequently and suddenly. Economic, financial, and business fundamentals are uncertain, and geopolitical risks are significantly elevated. Risks lying dormant could suddenly surface.

11-Year Outperformance by the
Top 10 Exchange Traded Funds
Weekly Rankings of Major Trend Relative Strength
My weekly Top 10 ETFs ranked by the Major Trend Relative Strength outperformed the S&P 500 by over an 11-year period of real-time weekly tests. Click here for a graph of simulated performance.
Please note that my ETF rankings are available by subscription--NOW WITH A NO-RISK FREE TRIAL.
See The Colby Global Markets Report (click here).

My latest book was named one of the top investment books by Stock Trader's Almanac 2005. This book also received an excellent review in the November 2003 issue of Futures.

My ETF Rankings are not investment advice. Rather, they are an objective ongoing research study.

Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my Money Management Rules.

According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Trading and investing involve risk of significant loss. Your use of this site means that you have read, understood, and accepted my Disclaimer.            

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Robert W. Colby, CMT,
is a consultant to institutional and private investors and traders, providing regular analytical reports, custom research services, and trading systems tailored to clients' objectives. Clients include the most successful traders and investors in the world. Robert is the author of The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill, 2003, which has become the standard reference for indicator and trading systems design. Previously, at several large Wall Street firms, Robert worked as a proprietary trader, technical analyst, and fundamental analyst. He also was adjunct professor at New York University and New York Institute of Finance, where he developed new courses on technical analysis and market timing.

Robert W. Colby is a Chartered Market Technician (CMT), an accreditation granted to members by the CMT Association (https://cmtassociation.org/) after demonstrating professional competence and ethics over a period of many years. Robert has been a member since 1980, and he strongly supports the CMT Association's high standards. He also supports the The Technical Analysis Educational Foundation (https://www.taeducation.org/about/), which works to have technical analysis included in the curriculum of major business schools. "The CMT Association is the national organization of investment analysts, stock market analysis professionals, and certified market technicians in the United States."

Robert W. Colby is America's foremost authority on testing market indicators."
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Ranking ETFs
"Robert Colby has evolved a system that, while hardly foolproof, is pretty clever," wrote Daniel Fisher, "Surfin' ETFs", Forbes, Investment Guide, Special Issue, June 4, 2007.
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"Gold's next move: History, logic, and intermarket relationships. See if testing gold's relationship to different markets over a 32-year period provides possible trade signals for the yellow metal."
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"Which gold indicators are best? Divining gold's next move."
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"PUTTING CANDLES TO THE TEST, How Profitable Are They Really?" by Robert W. Colby, CMT. Published in SFO, STOCKS, FUTURES AND OPTIONS MAGAZINE, Volume 5. No. 8. August 2006, pages 91-94. Please click here to buy this article. (Scroll to bottom of linked page.)

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Active Trader magazine September 2004 interviewed Robert W. Colby. 4 pages. "Robert W. Colby: Technical collector. A discussion with Robert W. Colby about technical trading and his revised Encyclopedia of Technical Market Indicators, Second Edition. By Active Trader Staff."

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