July 19, 2012 - after the slowdown comes the acceleration

I started talking about a slowdown in the economy during spring this year. Judging by some indicators I watch, this slowdown has come to fruition.

Here is the pace of change in Real Retail Sales,

 and the CPI.

The stock market usually anticipates and accompanies these indicators as they move lower. This time was no different.

Simce the indicators reached the lower boundaries of their intervals of variation, the next move will be up. This would mean some good news for the economy until the autumn, but I do expect this bounce to be weak. Anyway, it will push the stock market higher and help lure in some imprudent bulls.

Update (July 13, 2012) - a contrarian sign

The latest cover from The Economist is not a good sign. Here it is.

And here is the cover from June 2007. Somewhat similar.

Everybody knows what happened afterwards.

This contrarian sign just brings more confirmation to the bear-market thesis. In the same vein, the rally off the 1250 lows is looking weak. Here is a ratio of two etfs: consumer discretionary items and consumer staples (XLY vs. XLP).

The underperformance is obvious. It usually is this obvious at important turning points.

Will the rally continue? I think so, given that intermediate term indicators are not yet overbought. I believe a higher low was made yesterday.

The 5 day ema of the put/call ratio will probably reach the overbought level for bear markets first before the market tops out. Just in time to turn most of the participants bullish. In fact, one can always count on the majority's incredible ability to become overoptimistic at important tops.