Inside the StockCharts platform there are many economic numbers that can show where the economy is headed. These numbers affect bonds, stocks, and commodities. In this guide we focus on how they can help stock traders.
It works best when we look at the momentum of the data instead of the raw numbers. Momentum shows the rhythm of the data and makes it easy to see highs and lows. The long‑term KST is one way to do this, but tools like MACD or a slowed‑down stochastic oscillator work as well.
Understanding peaks and valleys matters because the business cycle moves in a set order. Economists call the numbers that move before the economy “leading”, those that move with it “coincident”, and those that move after it “lagging”.
The first picture shows two leading indicators and one coincident indicator from StockCharts. The top line is ISM Manufacturing New Orders, one of the earliest signals. Below it is the Conference Board LEI, another leading number. The bottom line is Industrial Production, a coincident indicator. Green arrows link the low points, showing the typical order: New Orders → LEI → Production. Sometimes the order flips, shown by dashed arrows, and occasionally New Orders moves but the later indicators do not follow, marked by red circles.
Even though the exact timing changes each cycle, the overall pattern stays similar.
The KST of New Orders fell to a low in 2023, paused last year, and is now climbing again. It even rose in March and April despite high energy prices. If the usual order holds, the strength in New Orders should flow into the LEI and then into Production.
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The idea is simple: the stock market often predicts where the economy will go months ahead. When the LEI’s KST crosses above its moving average, it usually means economic growth will strengthen. Green vertical lines mark these crossovers, and historically they have been followed by higher stock prices. Only two false signals have appeared since the 1960s, shown by dashed lines.
Sell signals from the LEI KST have been less reliable lately because the market has mostly risen in a straight line since the early 1980s. Most drops have been short, quick bear markets that a slow‑moving KST can’t catch quickly.
Right now the LEI KST is still bullish, but only just. The rise in the ISM New Orders KST suggests the LEI KST may turn stronger soon.
Another leading indicator is the Philadelphia Fed’s Future Capital Spending. The raw data is noisy, so a 12‑month moving average is used. The vertical lines show where the MACD hit lows (identified after the fact). Those low points often line up with later turns in the economy or market, giving us useful clues.
Both the spending line and its MACD are still moving upward, but they are getting close to an over‑stretched area. For now, we stay steady, but we watch it closely.
Because the market has been mostly rising, MACD peaks have not often predicted real tops. At the moment there are no signs of a peak, so the current late‑cycle rally may keep going.
Good luck and happy charting!
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