Why The Latest Look At The Leading Indicators Points To The Stock Market Going Down

Deviating from a relatively tight correlation, the Coincident to Lagging ratio fell this month and has now either fallen or been flat for seven months in a row.  My initial post on this ratio can be found here.

One of the theories behind this ratio is that when the expansion is nearing its final stages both sets of indicators will be rising, but the increase for the coincident will be slower than the lagging hence the ratio will fall.

Richard Yamarone notes in his book “The Trader’s guide to key economic indicators” that this ratio has fallen before every recession since 1959.

Legendary investor Ken Fisher is also known to use this ratio in his view of the economy. In 1992 Fisher noted that “when this ratio is rising sharply, always be bullish” and “when it is falling, adopt your most bearish posture”.

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