“Davidson” Submits:

Good example of how 2 indices using different criteria provide different results. The Chicago Fed is a soft data sentiment index while the Ind Prod Mfg is hard data driven, i.e. actual $value of goods produced.

You can see that CFMMI was soft late 2003 into late 2005 and then mid-2006 till early 2007 while the Ind Prod kept rising without a similar pattern.

CFMMI turned with the Ind Prod at tops and bottoms, but was only helpful at calling a SP500 turn in early 2009.

Capture447 624x295 Davidson on Chicago Fed vs Industrial Manufacturing

My two cents:

Sentiment indicators can be very dangerous. Had you seen the Fed Sentiment weakening in 2003 and then flatline in 2005-07 and simply “sat out” the market, you would have made a VERY unwise investing decision. Why? The market almost doubled in that time frame:

Capture448 624x168 Davidson on Chicago Fed vs Industrial Manufacturing

Even at “top and bottoms” of the market, the sentiment indicator is meaningless unless a correspnding turn in the actual data is present.

People’s “sentiment” will rule markets on a day to day basis but it is the actual data that overtime rules the direction.