Macro Monday 18~Durable Goods Signals
Macro Monday 18
Using New Orders for Durable Goods to Anticipate Market Direction
This week we are using the Manufacturers New Orders for Durable Goods Survey data (“Durable Goods”) to help anticipate price movements on the S&P500. The 30 month moving average for Durable Goods can act as a threshold level for buy and sell signals for the S&P500 whilst also providing advance warnings of recession and/or capitulation events. This has been clearly illustrated in the chart.
Durable Goods Explained
Durable goods orders is a broad-based monthly survey conducted by the U.S. Census Bureau that measures current industrial activity which proves to be is useful as an economic indicator for investors. Durable goods orders reflect new orders placed with domestic manufacturers for delivery of long-lasting manufactured goods (durable goods) in the near term or future.
A high durable goods number indicates an economy on the upswing while a low number indicates a downward trajectory.
Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and provide more insight into the supply chain than most indicators. This can be especially useful in helping investors understand the earnings in industries such as machinery, technology manufacturing, and transportation.
What’s Included in Durable Goods?
Durable goods are expensive items that last three years or more. As a result, companies purchase them infrequently. Examples include machinery and equipment, such as computer equipment, industrial machinery, and raw steel, as well as more expensive items, such as steam shovels, tanks, and airplanes—commercial planes make up a significant component of durable goods for the U.S. economy. Many analysts will look at durable goods orders, excluding the defense and transportation sectors as large once off orders can often skew the figures.
Durable goods orders data can often be volatile and revisions are not uncommon, so investors and analysts typically use several months of averages instead of relying too heavily on the data of a single month. In our chart we have found the 30 month moving average to be particularly apt as a threshold level
The Chart
In the chart we have the Durable Orders metric in blue and the S&P500 in baby blue. The 30 month moving average on Durable Goods (Dark Brown Line) is used as a threshold level for buy and sell signals.
When the blue line for new orders of Durable Goods definitively passes the 30 month moving average (Dark Brown Line) this provides the buy or sell signal based on whether it moves above or below the average.
Main Findings
1. When Durable Goods Orders(blue) fall below the 30 month moving average(brown) this is sell signal
2. When Durable Goods Orders(blue) break above the 30 month moving average(brown) this is a buy signal
3. Declining durable goods and/or a fall below the 30 month moving average has offered advanced warning of recession and/or capitulation.
Sell Signal Record
(Blue line crossing below Dark Brown Line)
▫️ In Oct 2000 five months before the Dot.Com Crash which commenced in Mar 2001, the Durable Goods Moving Average provided a sell signal offering an five month advanced warning of recession.
▫️ In Dec 2007 the Great Financial Crisis (“GFC”) commenced and whilst New Orders for Durable Goods had not passed below the moving average before the recession it did pass the moving average mid recession signalling an advance warning of the major capitulation event of the GFC crash. Once again Durable Goods was of great utility in avoiding unnecessary losses.
▫️ A sell signal triggered in Oct 2014 and whilst there was no crash, the S&P500 price oscillated sideways for >24 months post signal and only increased in value by 9%. During this 24 month period capital would have been better allocated somewhere offering a better than 9% return.
▫️ In Feb 2019 one year before the COVID-19 Crash the Durable Goods Moving Average provided an advanced sell/recession signal, and whilst the S&P500 did rally c.13.5% after the signal over the subsequent 12 months, the S&P500 ultimately fell 23% thereafter in a matter of months taking back all those gains and more.
Buy Signal Record
(Blue line crossing above Dark Brown Line)
▫️ As you can see from the chart the buy signals provide a great confirmation of trend, that price on the S&P500 will likely continue in an upwards trajectory.
▫️ For the four buy signals confirmed we had 50 months of upwards price pressure on the S&P500 on the first two occasions and on the latter two 18 months and 15 months of upwards price action.
▫️ Taking the four aforementioned buy signals, an the average return was 60.5% f(max return possible from a buy signal the market high).
▫️ The performance from a buy signal to sell signal was an average of 43% across the four instances.
The chart demonstrates that using the 30 month moving average for Durable Goods New Orders can very useful in determining market trend.
At present we are well above the 30 month moving average and appear to be trending upwards. We can continue to monitor this chart and watch for a cross of the 30 month moving average as an additional confirmation of a change to a bearish trend for the S&P500 when it happens. For now this is just another chart to help us identify bearish/bullish trend changes by using the economic data from Manufacturers New Orders for Durable Goods.
As always folks, stay nimble
PUKA
Using New Orders for Durable Goods to Anticipate Market Direction
This week we are using the Manufacturers New Orders for Durable Goods Survey data (“Durable Goods”) to help anticipate price movements on the S&P500. The 30 month moving average for Durable Goods can act as a threshold level for buy and sell signals for the S&P500 whilst also providing advance warnings of recession and/or capitulation events. This has been clearly illustrated in the chart.
Durable Goods Explained
Durable goods orders is a broad-based monthly survey conducted by the U.S. Census Bureau that measures current industrial activity which proves to be is useful as an economic indicator for investors. Durable goods orders reflect new orders placed with domestic manufacturers for delivery of long-lasting manufactured goods (durable goods) in the near term or future.
A high durable goods number indicates an economy on the upswing while a low number indicates a downward trajectory.
Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and provide more insight into the supply chain than most indicators. This can be especially useful in helping investors understand the earnings in industries such as machinery, technology manufacturing, and transportation.
What’s Included in Durable Goods?
Durable goods are expensive items that last three years or more. As a result, companies purchase them infrequently. Examples include machinery and equipment, such as computer equipment, industrial machinery, and raw steel, as well as more expensive items, such as steam shovels, tanks, and airplanes—commercial planes make up a significant component of durable goods for the U.S. economy. Many analysts will look at durable goods orders, excluding the defense and transportation sectors as large once off orders can often skew the figures.
Durable goods orders data can often be volatile and revisions are not uncommon, so investors and analysts typically use several months of averages instead of relying too heavily on the data of a single month. In our chart we have found the 30 month moving average to be particularly apt as a threshold level
The Chart
In the chart we have the Durable Orders metric in blue and the S&P500 in baby blue. The 30 month moving average on Durable Goods (Dark Brown Line) is used as a threshold level for buy and sell signals.
When the blue line for new orders of Durable Goods definitively passes the 30 month moving average (Dark Brown Line) this provides the buy or sell signal based on whether it moves above or below the average.
Main Findings
1. When Durable Goods Orders(blue) fall below the 30 month moving average(brown) this is sell signal
2. When Durable Goods Orders(blue) break above the 30 month moving average(brown) this is a buy signal
3. Declining durable goods and/or a fall below the 30 month moving average has offered advanced warning of recession and/or capitulation.
Sell Signal Record
(Blue line crossing below Dark Brown Line)
▫️ In Oct 2000 five months before the Dot.Com Crash which commenced in Mar 2001, the Durable Goods Moving Average provided a sell signal offering an five month advanced warning of recession.
▫️ In Dec 2007 the Great Financial Crisis (“GFC”) commenced and whilst New Orders for Durable Goods had not passed below the moving average before the recession it did pass the moving average mid recession signalling an advance warning of the major capitulation event of the GFC crash. Once again Durable Goods was of great utility in avoiding unnecessary losses.
▫️ A sell signal triggered in Oct 2014 and whilst there was no crash, the S&P500 price oscillated sideways for >24 months post signal and only increased in value by 9%. During this 24 month period capital would have been better allocated somewhere offering a better than 9% return.
▫️ In Feb 2019 one year before the COVID-19 Crash the Durable Goods Moving Average provided an advanced sell/recession signal, and whilst the S&P500 did rally c.13.5% after the signal over the subsequent 12 months, the S&P500 ultimately fell 23% thereafter in a matter of months taking back all those gains and more.
Buy Signal Record
(Blue line crossing above Dark Brown Line)
▫️ As you can see from the chart the buy signals provide a great confirmation of trend, that price on the S&P500 will likely continue in an upwards trajectory.
▫️ For the four buy signals confirmed we had 50 months of upwards price pressure on the S&P500 on the first two occasions and on the latter two 18 months and 15 months of upwards price action.
▫️ Taking the four aforementioned buy signals, an the average return was 60.5% f(max return possible from a buy signal the market high).
▫️ The performance from a buy signal to sell signal was an average of 43% across the four instances.
The chart demonstrates that using the 30 month moving average for Durable Goods New Orders can very useful in determining market trend.
At present we are well above the 30 month moving average and appear to be trending upwards. We can continue to monitor this chart and watch for a cross of the 30 month moving average as an additional confirmation of a change to a bearish trend for the S&P500 when it happens. For now this is just another chart to help us identify bearish/bullish trend changes by using the economic data from Manufacturers New Orders for Durable Goods.
As always folks, stay nimble
PUKA
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