Credit spread recovering but not enough

Market is still trading in the range but internals have recovered a bit. Enough to reverse the bear course?

The credit spread below shows stabilization and a small uptick; however, the stock market is not confirming. The chart shows two other instances of credit spread leading the stock market down, recovering a bit but stock price fails to make new highs. Subsequently, the downtrend was quickly established for both. The lesson here is important. Unless stocks can quickly establish leadership here, we will likely start making lower lows.

Figure 1. Credit spread and stock market.

Figure 2. Shows the ECRI weekly leading index. It continues to show weakness. It is worth noting that SP500 is a component of ECRI LEI and LEI is down even with SP500 holding up. If the stock market starts loosing altitude, the ECRI LEI will follow.

Figure 2. ECRI LEI and stock market

ECRI weakly leading index indicates slowdown

U.S. weekly leading index from ECRI has shown weakness in the recent weeks as shown below (the shaded areas indicate U.S. recessions):

The index has turned negative after a being positive for 2013 and most of 2014. The indicated slowdown is not yet significant but it is in contrast to consensus optimism for 2015 and the record high stock market.

A longer view of this index is shown below. ECRI has quite good track record in indicating recessions but has also given a few false warnings. Nevertheless, this is an indicator to keep on eye on.