Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Deluge Ahead or Smooth Sailing for the Stock Market?

Stock-Markets / Stocks Bull Market Aug 25, 2009 - 01:08 AM GMT

By: Chris_Wilson

Stock-Markets

Best Financial Markets Analysis ArticleMany traders, given all the statistics, trends, and patterns at their disposal, have been reluctant to buy stocks for a while now.  Momentum traders would contest, however, that by not buying, you would have missed out on some pretty decent gains for stocks over the past few months.  It’s true- even your most reliable indicators often will tell you when to enter a trade, but they won’t always tell you how long a market may stay in a trend.  The old axiom about the market remaining irrational longer than you can remain solvent comes to mind.  But that begs the question: Is the market irrational here?


One of several forecasting tools available to economists (and investors) includes the Baltic Dry Index, or BDI.  With one of our newsletters, CycleShares, we try to go where the data tells us as often as possible.  The market occasionally does not correlate to the tools available to us, but those are the times to be cautious in our opinion.  Our 2009 performance is respectable for sure (+20% YTD), but anxious investors with short time horizons get antsy when no bullish (or bearish) stock recommendations are forthcoming.  And so it currently goes with CycleShares and the BDI.  This index may be one of the best macro economic tools for assessing economic activity and the stock market.  It generally leads the market, as seen in the early Spring of 2009, prior to the bottom in March.  What concerns us now is the obvious divergence we’ve seen since June, with the BDI falling rapidly while stocks climb.

Is this 100% reliable- can you simply time the market based on its movement?  Hell no!  Just look at 2005, when it also fell off a cliff, but the market continued higher, scorching bears in its wake.  Ultimately the BDI turned up as well, so if you had followed it, you would have gained more, yet missed out on a percentage of the market’s gains.  Using this tool is just like any other-it must be used with confirming indicators to form a bigger picture- one that may cause you to miss some easy gains, but could also keep you out of harm’s way.  Under the current circumstances, this divergence signals caution, including taking bullish positions of any duration.  If it makes a higher high and stocks are still climbing, you could rethink your position assuming you use some other measures that confirm a bullish view. 

Today we’re dealing with a Federal Reserve and Congress almost begging the public to enter into debt via accommodative money policies and incentive-based stimuli.  Perhaps the BDI will turn up again as this blistering run-up continues, but unlike the stock market, the BDI is more of a reality gauge that often conflicts with sentiment.  Our leaders may coerce “sheople” into debt, but it’s the populace that determines whether they can afford to buy more products or not.  Sentiment is a two-way street, but for the near term, irrationality has won out.  Now the question remains if it will continue.

Chris Wilson
www.CycleSpreads.com / www.CycleShares.com / www.CycleETF.com
email: info@cyclespreads.com

© 2009 Copyright Chris Wilson - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in