The Three Charts You Need to Watch
By Tom Dyson
Monday, June 22, 2009
If you invest in the stock market, you need to track the three charts below. These three charts could predict the direction of the stock market...
One or two stock sectors always lead the market. In the late 1990s and early 2000s, it was technology and Internet stocks. These stocks went up the most in the bull market and fell the most in the bear market.
In the bull market of 2003 to 2007, multiple stock sectors led the market, from housing to finance, energy, emerging markets, construction, and even infrastructure. These "hot money" favorites drove the market higher in the boom and then dragged it down in the bear market.
Jesse Livermore is one of the most famous traders who ever lived. He built several multimillion-dollar fortunes in the early 20th century by trading stocks. I won't say he was successful, as he went broke at least three times. But he did contribute his knowledge and trading wisdom to one of the best trading books of all time, Reminiscences of a Stock Operator.
Livermore believed the market leaders are your best indicator for the direction of the stock market in general. As the leaders go, he said, so goes the entire market.
I track a list of 86 exchange-traded funds (ETFs). Every week, I calculate which ETFs have risen and fallen the most in the last three months. Emerging markets, construction, commodities, and financial stocks have led the recent market rally, which took the S&P 500 from 666 to 950 over the last three months.
Russia's ETF was the top-performing country ETF for nine weeks in a row. Russia is simultaneously an emerging market and commodity play. The Russian economy is highly leveraged to oil and gas... and Russian investments are an emerging market "hot money" favorite. However, it might be starting a new downtrend:
The financial sector is the most important industry in America, if not the world. It received more bailout money than any other sector... and people think the health of the financial sector determines the health of the economy. The financial ETF rose 122% from the low to the high. But this chart could be rolling over, too:
Finally, take a look at this chart of the homebuilding ETF. It represents the health of the American construction industry, the basic materials industry, and the real estate market. This chart has been on fire for the past three months... but it doesn't look pretty either:
If you invest in the stock market, you need to pay attention to these three charts. They represent the most prominent stocks in the market. As their prices go, so will go the stock market.
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Right now, these charts are hinting at a new downtrend. It's probably time to hold off on new buys... and time to make sure you mind your stop losses to protect profits.
Good investing,
Tom |
NEW HIGHS OF NOTE LAST WEEK
Capstead Mortgage (CMO)... mortgage REIT
Sanderson Farms (SAFM)... Big Chicken
Avanair Pharma (AVNR)... biotech
BioDelivery (BDSI)... drugs
NeurogesX (NGSX)... biotech
Inspire Pharmaceuticals (ISPH)... biopharma
ISTA Pharmaceuticals (ISTA)... eye treatments
ICU Medical (ICUI)... medical devices
ATRION Corp (ATRI)... medical devices
Edwards Lifesciences (EW)... medical devices
Cerner (CERN)... health care IT
HLTH Corp (HLTH)... health care IT
HMS Holdings (HMS)... health care IT
Allscripts-Misys Healthcare (MDRX)... health care IT
Tianvin Pharma (TPI)... Chinese medicine
ChinaCast Education (CAST)... Chinese education
ChinaEdu Corp (CEDU)... Chinese education
NEW LOWS OF NOTE LAST WEEK
Cattle ETF (COW)... the downtrend in beef continues |
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While iconic investor Warren Buffett has warned against trading stock options, such trading began for his Berkshire Hathaway this week on the Chicago Board Options Exchange.
In 2008, during Berkshire's annual meeting, Buffett said, "Usually, if you want to buy or sell a stock, you should buy or sell the stock."
"Using options, four times out of five you will be right, the last one you'll miss. I've virtually never used options as a way to enter or exit a position."
Nevertheless, investors can now do so on Berkshire stock itself. The CBOE provides trading of contracts based on Berkshire's Class B shares.
– Newsmax
Los Angeles County government has more than 8,000 phones that never ring. The annual cost to taxpayers? At least $1.5 million and climbing.
Officials worry that some lines may have never served a county purpose. One was registered to a now-defunct ticket brokerage in Hollywood called Theatix. For 14 years, the bill for the line – currently $38 a month – has been paid by taxpayers.
Don Ashton, a spokesman for the supervisors' executive office, said he could not explain who approved the line or who signed off on the invoices, paid out of a Board of Supervisors account, for all these years.
"We haven't been able to find that out," he said.
– LA Times
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Chinese math whiz created the formula that caused the mortgage crash
Here's how Wall Street foolishly used a single equation to justify piles of stupid investments.
About ten years ago, a Chinese math whiz named David Li created a brilliant but simple formula. The formula supposedly measured how much risk a basket of mortgage bonds carried… and how likely it was the bonds would cause huge losses. |
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