Last week, Lance Roberts pointed us to a stock market chart that showed if 2012 were to repeat 2011, than stocks should collapse within days.
LPL Financial’s Jeff Kleintop points at the pattern again in his weekly market commentary. But he goes one step further to show the divergence between stocks and the Citigroup Economic Surprise Index, which measures whether economic data comes in better or worse than estimates.
Lately, disappointing economic data has caused the CESI to fall, while stocks have been relatively resilient.
Here’s Kleintop’s comments:
For the gap between market and economic performance depicted in Figure 1 to close, either upcoming economic data must surprise to the upside or stocks need to drop sharply. It is notable that a gap similar to the current one appeared in July of 2011. Ominously, that gap closed with a sharp drop in the S&P 500, as you can see in Figure 2.
In other words, if the relationship between stocks and the CESI holds, than stock investors are going to want economic data to start surprising to the upside again soon.
Photo: LPL Financial