IMF World Economic Outlook (April 2010)

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The Global Recovery Is Progressing; The Economic Bottom Is In

Overview

The International Monetary Fund has issued the World Economic Outlook and overall it is positive, that is, "the global recovery is proceeding better than expected, but at varying speeds". However, IMF mentions plenty of obstacles to get anywhere near the "good old days".  World growth for 2010 is expected to be +4.25%, i.e., faster in emerging and developing countries and "tepidly" in many advanced countries. "USA economic recovery is off to a better start than Europe or Japan".

Selected 2010 & 2011 % Growth Rates for World Output (GDP)

World +4.2, +4.3

Advanced Economies +2.3, +2.4
Emerging & Developing Economies +6.3, +6.5
United States +3.1, +2.6
Japan +1.9, +2.0
China +10.0, +9.9
Germany +1.2, +1.7
United Kingdom +1.3, +2.5
Euro Area +1.0, +1.5
India +8.8, +8.4
Russia +4.0, +3.3
Brazil +5.5, +4.1
Asia +6.9, +7.0
Europe +1.3, +1.9
South America & Mexico +4.4, +4.0
Middle East & North Africa +4.5, +4.8
Sub-Saharan Africa +4.7, +5.9

Financial System

"As the recovery has gained traction, risks to global financial stability have eased, but stability is not yet assured".

Bubbles

For the Bubble Watchers: "So far, there is no systemwide evidence of bubbles, although there are a few hot spots, and risk could build up over a longer-term horizon".

Sovereign Debt

"The key task ahead is to reduce sovereign vulnerabilities".  "Should include clear time frames to bring down gross debt-to-GDP ratios".  Entitlement reforms "should be implemented without delay" plus fully implementing planned 2010 fiscal stimulus to a "still fragile recovery".

Unemployment

Nothing of note here, implement usual macroeconomic policies to decrease unemployment and assist unemployed.

Financial Regulatory Reform

Do it!  Specifically addressed in the Global Financial Stability Report (November 2009).

Rebalancing Growth

The Gist: USA & UK cut debt and reduce trade deficits (slow down buying from China, lol) while China responds accordingly and develops internal economy.  These comments are aimed primarily at USA & UK versus primarily China, then other BRIC countries: "This means that economies that had excessive external deficits before the crisis need to consolidate their public finances in ways that limit damage to growth and demand. Concurrently, economies that ran excessive current account surpluses will need to further increase domestic demand to sustain growth, as excessive deficit economies scale back their demand".

My Brief Conclusion

The worst is over but certain policies to reduce sovereign debt need to be implemented by affected nations.  Financial system reform is necessary.  The worldwide recovery is underway and the emerging & developing countries should see strong, if not exceptional, GDP growth in 2010 & 2011.  The advanced countries GDP growth will vary and fiscal deficits and related sovereign debt need to be reduced.

Links

There's a lot of data and charts on all sorts of macroeconomic areas in the IMF report.

IMF World Economic Outlook (WEO) - Rebalancing Growth, April 2010 -- Table of Contents: "World Economic Outlook"

The entire report, a .pdf download, is here.

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XLI (S&P 500 Industrials Sector): Onwards & Upwards!

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Overview

XLI is up +0.97% for the week, up +3.71% for the month, up +16.59% for the year, and up +110.94% since the March 9, 2009 market bottom. Very positive manufacturing data has been released in the past few weeks for the USA, Europe, China, and the World, so I am bullish on XLI. In addition, the BLS March Employment Report was encouraging. XLI has rallied since February 8.

The Conference Board Leading Economic Index

On Monday, April 19, TCB issued its March LEI for the USA, as noted in my previous post.  The March LEI was up a very postive +1.4% to an all-time high of 109.6.  This economic metric is very encouraging for USA equities and for the industrials sector in particular, e.g. XLI.

XLI ETF & Portfolion  Holdings

XLI is an Industrials ETF designed to represent the industrial sector of the S&P 500, which is 10.55% of the entire S&P 500. The industrials are varied, including aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, machinery, commercial services and supplies, air freight and logistics, airlines, marine, road and rail, and transportation infrastructure companies. See the XLI Industrials portfolio holdings here. Top 10 holdings currently are: General Electric, United Technologies, United Parcel Service, 3M, Boeing, Caterpillar, Union Pacific, Emerson Electric, Honeywell, General Dynamics, a total of 50.76% of the portfolio. This is a very popular and liquid ETF.

XLI Daily Chart
Below is the XLI daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:
Current Close 32.40 (Highest yellow horizontal line)
2010 YTD 4-15-10 High 32.62
10 Month EMA 28.23 (Mieele yellow horizontal line)
YE 12-31-09 27.79 (Lowest yellow horizontal line)

XLI: Just Below 2010 YTD Closing High

Intermediate-Term Trend

The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the XLI on March 9 (the 1 year anniversary of the bottom for XLI, btw). That is, the 25d sma is greater than the 50d sma. A bear market signal had previously been in effect since February 12, 2010.

Resistance

The current closing price, the highest yellow horizontal line, is just below the 2010 YTD high of 32.62 set on April 15, which is recent resistance. XLI is trading in the middle of the September 2008 sideways trading range.  Possible long term resistance could be the 32.58 dip on 7-15-08.  XLI is also trading in the July, August, September 2006 (plus early 2006) area.  There is even more price history back in 2001 and 2000.

Support

There are multiple levels of support below, including the Monday low of 32.03.  Other notable near term support is the previous 2010 YTD of 29.57 on January 11.  There is long term support back in August and September 2006.

Moving Averages

The 25d, 50d, 100d, and 200d sma's are all ascending. All the moving averages are being pulled upwards by the XLI 2010 YTD highs.

Uptrend Line

The uptrend line, a rate of price ascent, is from the March 9,.2009 closing low of 15.36 up through the February 8, 2010 closing low of 26.90. The February 8 closing low was the bottom of the 2010 pullback. XLI bounced above this trendline on February 9 and has remained above.

Downtrend Line

A downtrend line, a rate of price descent, not shown, is from the October 9, 2007 all-time closing high of 41.90 down through the May 19, 2008 peak closing high of 39.72. XLI is still below this trendline, which is now in the 33.50 area.

Relative Strength Index (RSI)

RSI 14 day = 67.01 is reasonble; the recent selloff pulled the RSI down from overbought conditions
RSI 28 day = 72.59 is marginally overbought, but not unreasonable
The RSIs are reasonable and indicating XLI can go higher.

MACD (12,26,9)
The MACD became bearish on Monday, April 19 due to the selloff, but is basically neutral.

Long-Term Trend

The middle yellow horizontal line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The XLI is above this signal at the current close, the highest yellow horizontal line.

Conclusion

USA & World industrial, jobs, & GDP data are indicating economic growth, which is bullish for XLI.  XLI is just below the 2010 YTD closing high. The RSIs are reasonable and the MACD is basically neutral.  XLI will ultimately break through upside to yet more new 2010 highs. Ongoing consolidation trading and mild pullbacks will occur as XLI stair steps upwards at a slow pace. The intermediate-term trend is bullish. The long-term trend remains bullish.

Disclosure
We have a long position in XLI.

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The Conference Board Leading Economic Index® (LEI) for the U.S. Increases

This is very positive economic data. The The Conference Board Leading Economic Inex is the best economic metric I know of. LEI increases +1.4% in March to a 109.6 all-time high! This after increases of +0.6% and +0.4% in January and February. Very encouraging for USA economy. I think the bottom is definitely in and the economic recovery is gaining strength. This is also very bullish indicator for the stock market. The Conference Board Leading Economic Index® (LEI) for the U.S. Increases: "The Conference Board Leading Economic Index®"

S&P 500 Industrials Sector: XLI Closes at 2010 High

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Overview

XLI is up +1.08% for the week, up +1.73% for the month, up +14.36% for the year, and up +106.90% since the March 9, 2009 market bottom. Very positive manufacturing data has been released recently for the USA, Europe, China, and the World, so I am bullish on XLI. In addition, the BLS March Employment Report was encouraging. XLI has rallied since February 8. XLI is an Industrials ETF designed to represent the industrial sector of the S&P 500, which is 10.50% of the entire S&P 500. The industrials are varied, including aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, machinery, commercial services and supplies, air freight and logistics, airlines, marine, road and rail, and transportation infrastructure companies. See the XLI Industrials portfolio holdings here. Top 10 holdings currently are: General Electric, United Technologies, United Parcel Service, 3M, Boeing, Caterpillar, Union Pacific, Emerson Electric, Honeywell, General Dynamics, a total of 50.78% of the portfolio. This is a very popular and liquid ETF.

XLI Daily Chart

Below is the XLI daily chart for 2010.

Noteworthy Closing Prices on Daily Chart below:

Current Close + 2010 YTD 4-9-10 High 31.78 (Highest yellow horizontal line)

Previous 2010 YTD 1-11-10 High 29.57 (Second highest yellow horizontal line)

YE 12-31-09 27.79 (Lowest yellow horizontal line)

10 Month EMA 28.12 (Third highest yellow horizontal line)

XLI: At 2010 YTD Closing High

Intermediate-Term Trend

The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the XLI on March 9 (the 1 year anniversary of the bottom for XLI, btw). That is, the 25d sma is greater than the 50d sma. A bear market signal had previously been in effect since February 12, 2010.

Resistance

The current closing price, the highest yellow horizontal line, is above any recent resistance. XLI is trading in the late September 2008 area which appears to have caused some longer term resistance in the 31.70 area and specifically 31.73 (9-17-08) and 31.70 (9-25-08). XLI has just closed above both of these prices.  XLI is also trading in the late 2005 and early 2006 price range.

Support

There are multiple levels of support below, including the sideways trading in March. The aforementioned longer term support, previously resistance, of 31.73 (9-17-08) and 31.70 (9-25-08) may well hold now. Other notable near term support is the previous 2010 YTD of 29.57 on Janaury 11.

Moving Averages

The 25d sma stopped descending on February 26 and bounced up. The 25d, 50d, 100d, and 200d sma's are all ascending. All the moving averages are being pulled upwards by the XLI 2010 YTD highs.

Uptrend Line

The uptrend line, a rate of price ascent, is from the March 9,.2009 closing low of 15.36 up through the February 8, 2010 closing low of 26.90. The February 8 closing low has been the bottom of the 2010 pullback. XLI bounced above this trendline on February 9.

Downtrend Line

A downtrend line, a rate of price descent, not shown, is from the October 9, 2007 all-time closing high of 41.90 down through the May 19, 2008 peak closing high of 39.72. XLI is still below this trendline, which is now in the 33.70 area.

Relative Strength Index (RSI)

RSI 14 day = 72.35 is overbought, has spiked up from low 62.61 on April 8

RSI 28 day = 78.44 is overbought, but has been decreasing from 82.38 high on April 5

The RSIs are indicating overbought conditions, but are not unreasonable.

MACD (12,26,9)

The MACD continues bearish since Wednesday, March 31. The MACD had previously been bullish since February 16.

Long-Term Trend

The third lowest yellow horizontal line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The XLI is above this signal at the current close, the highest yellow horizontal line.

Conclusion

XLI is at a 2010 YTD closing high. The RSIs are signalling overbought conditions, but are not unreasonable. MACD continues signalling bearish conditions since Tuesday, March 31. I believe XLI will ultimately break through upside to yet more new 2010 highs. Manufacturing and jobs data has been positive.  Some consolidation trading could occur beforehand, as XLI is stair stepping upwards at a slow pace. The intermediate-term trend is bullish. The long-term trend remains bullish.

Disclosure

I have a long position in XLI.

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Industrial Sector Update: XLI at 2010 High

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Overview XLI is up +1.131% for the week, up +0.64% for the month, up +13.13% for the year, and up +104.69% since the March 9, 2009 market bottom. Very positive manufacturing data was released this week for the USA, Europe, China, and the World, so I am bullish on XLI.  In addition, the BLS March Employment Report was encouraging.  XLI has rallied since February 8. XLI is an Industrials ETF designed to represent the industrial sector of the S&P 500, which is 10.50% of the entire S&P 500. The industrials are varied, including aerospace and defense, building products, construction and engineering, electrical equipment, conglomerates, machinery, commercial services and supplies, air freight and logistics, airlines, marine, road and rail, and transportation infrastructure companies. See the XLI Industrials portfolio holdings here. Top 5 holdings currently are: General Electric, United Technologies, United Parcel Service, 3M, and Boeing, a total of 34.37% of the portfolio. This is a very popular and liquid ETF.

XLI Daily Chart Below is the XLI daily chart for 2010.

Noteworthy Closing Prices on daily chart below:
Current Close + 2010 YTD 4-1-10 High 31.44 (Highest yellow horizontal line)
Previous 2010 YTD 1-11-10 High 29.57 (Second highest yellow horizontal line)
YE 12-31-09 27.79 (Lowest yellow horizontal line)
10 Month EMA 28.06 (Third highest yellow horizontal line)

XLI: At 2010 YTD Closing High

Intermediate-Term Trend The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the XLI on March 9 (the 1 year anniversary of the bottom for XLI, btw). That is, the 25d sma is greater than the 50d sma. A bear market signal had been in effect since February 12, 2010.

Resistance The current closing price, the highest yellow horizontal line, is above any recent resistance.  XLI is trading in the late September 2008 area which could cause some longer term resistance in the 31.70 area.  XLI is also trading in the late 2005 and early 2006 price range.

Support There are multiple levels of support below, including the sideways trading in March. Most notable near term support is previous 2010 YTD of 29.57 on Janaury 11.

Moving Averages The 25d sma stopped descending on February 26 and bounced up. The 25d, 50d, 100d, and 200d sma's are all ascending. All the moving averages are being pulled upwards by the XLI 2010 YTD highs.

Uptrend Line The uptrend line, a rate of price ascent, is from the March 9,.2009 closing low of 15.36 up through the February 8, 2010 closing low of 26.90. The February 8 closing low has been the bottom of the 2010 pullback. XLI bounced above this trendline on February 9.

Downtrend Line A downtrend line, a rate of price descent, not shown, is from the October 9, 2007 all-time closing high of 41.90 down through the May 19, 2008 peak closing high of 39.72.  XLI is still well below this trendline.

Relative Strength Index (RSI)

RSI 14 day = 72.57 is overbought, but has been decreasing

RSI 28 day = 75.50 is overbought, but has been decreasing some

The RSIs are indicating overbought conditions, but are not unreasonable.

MACD (12,26,9) The MACD is now bearish, effective Wednesday, March 31.  The MACD had previously been bullish since February 16.

Long-Term Trend The third lowest yellow horizontal line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The XLI is above this signal at the current close, the highest yellow horizontal line.

Conclusion XLI is at a 2010 YTD closing high. The RSIs are signalling overbought conditions, but are not unreasonable. MACD signalled bearish conditions on Tuesday, March 31.  I believe XLI will ultimately break through upside to new 2010 highs. Manufacturing and jobs data has been positive this past week.  Some consolidation trading could occur beforehand, as XLI is stair stepping upwards at a slow pace. The intermediate-term trend is bullish. The long-term trend remains bullish.

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