Investment Markets Information

Today's top indicator can save you

One of the reasons investors struggle with the financial markets is a misconception on which indicators are actually useful. Unfortunately, little attention is placed on re-evaluating indicators and using the best one for real time market conditions.

The price trend has shifted in the stock market to down. That much is obvious especially in the U.S. market. But history has some indications that tells us a great deal about what is likely coming next.

This is where some investors think it's time to get out the tea leaves and tarot cards. Just so you know, Investor Boot Camp founder Paul Thornton had this belief too, for too long. But years of frustration led to an interesting journey, changing assumptions and observation of thousands and thousands of stocks and markets. Here is something that is profound for you with managing your money.

Subscribers have been provided significant and frequent information that bases are crititcalfor understanding the behaviour of stocks. Within developing bases, there is a new behaviour that has historically been very reliable for predicting what comes next.

Let's use a chart so we can get the picture.

This is only one stock and it's not a leading stock by any stretch, but the analysis is still useful. The behaviour can develop in a leading stock, at any time, and would effectively end that stock's qualification as a potential buy.

You can see the red box on the chart to the far right. That box highlights a significant decline at a pivotal point in the price trend. Note how the stock (i.e. the price trend) had just recovered from the low of the base, reclaiming both the 200 day and 95 day moving averages (significant measuring points in the price trend). But the stock has dived back down. The decline isn't what is most significant, but rather the nature of the decline. It's a clear shift from a more controlled tighter trading behaviour to something entirely different. The five days of action is a dramatic change that, historically, has led to a prolonged period of bearish action.

Here's one more for our analysis also with profound implications for the short and intermediate term behaviour of a stock.

This is leading stock Netflix (NFLX). The stock, like many U.S. based leaders, has suffered a large decline (which is normal in a correction), but the loss has occurred in a straight line. Now what does a straight line mean? it means the trend does not feature any kind of a rally during the down trend.

This type of action is clearly extreme weakness. The problem for investors is the extreme weakness shows up again and it can show up many months after the stock bottoms out. Many investors will have forgotten the weakness as months of better action has reconditioned them. Ouch!

 Unbiased market analysis for investors who want to succeed. But more is needed to manage a portfolio. Know what it is, every day.

Market Scorecard

Summary of conditions and key indicators:

Up Trend in Canada, U.S. market under pressure

 

Indicator

Trend or behaviour

Analysis

 Market Trend

U.S. market in decline

  The Nasdaq is under heavy selling pressure. S&P 500 not as much. TSX and DJIA in up trends.

 Leading stocks

Limited

  TSX listed growth stocks in good condition. Some bullish action in U.S. market.

 Sector leadership  

 (by performance)

Broad sector mix.  

  Bio-techs are getting wiped out.

 IPO’s

Heavy selling

 

Put/Call Ratio: 

Contrarian Sentiment Indicator

.61

   Historical low readings tend to occur at market peaks.

Investor's Intelligence Survey: Contrarian Sentiment Indicator

  Bulls:  57%

 Bears: 18%

   Bearishness is extremely low and the spread between bulls and bears is about as wide as it gets. That's bearish for the market.

 E.C.R.I.

Rising

 The Economic Council Research leading Indicator has been reliable for its coincident timing with stock market trends.

 

 

Unbiased market analysis for investors who want to do cut through the noise and do better.

Time the market

Investors may time the market by using real time indications from the market itself. If investors had followed several significant sell signals in many U.S. based stocks, they could have avoided significant losses.

The communications to subscribers looked like this;

 

From the home page, this special report was presented to every one March 31st.

 

All investors have to do is follow the indications by logging into their account with their discount broker and executing transactions.

 

Rank stock indicators before stocks

The notion that stock picking is rooted in assessing a company works for mutual funds, but it is a flawed approach for investors who manage their own portfolios.

It's not that the company doesn't matter, it's just that the numerous fundamental aspects of a company cannot be measured systematically nor are they reliable. Earnings and sales growth are, by far, the key fundamentals but after that, very little matters when it comes to stock picking and timing the market.

As noted above, mutual funds and pension funds do plenty of homework on the stocks they buy. Once they have made their decisions, their buying and selling, on average, shapes the price trend. If an individual investor analyzes the company and thinks differently than the funds do, how does that help them? At best it is a waste of time, or worse, the retail investor goes against the trend.

Relative performance is the number one indicator for investment selection. This applies to markets and the thousands of choices available in the stock market. Intuitively, this makes sense on several levels. It is not only effective to screen or filter stocks this way, it saves time while managing risk.

Think of the standings in your favourite sport; which team is most likely to win the championship and which teams aren't?

But the intention in this current article is to look at another indicator and that is the trading pattern or behaviour of a stock. It is far more profound for timing, both shorter term and long term than most indicators or methodologies.

Trading is a nasty word for many investors who think of themselves as sophisticated. It's not a very good term, so think of it as security behaviour. Several times we pointed out in the subscribers markets commentary that sharp declines, from the highs, in many stocks was a recipe for more downside. Then more was highlighted on the anemic attempts to rally. Now that's two behaviours consistent with a developing down trend. But how could you know this? Simple; from the observation of thousands of stocks over decades of stock market history. Many behaviours in the stock market are predictable based on what preceded them. But note that they're not part of technical analysis or fundamentals research. Yet, historically valid trading patterns are far more effective as indicators than most alternatives.

Investor Boot Camp Online's proprietary Investor Tool Kit features an entire section devoted to bases. The understanding of bases and the implication for investing in stocks is, in our view, absolutely critical. It comprises a number of predictable investor behaviours in a definable condition within the price trend. Once an investor builds a solid knowledge of bases, they'll recognize that making decisions without it is like driving blindfolded.

 

Unbiased market analysis for investors who want to succeed.

For contact; info@investorbootcamponline.com

View Archive

Commentary including ideas, historical and other market indications are not investment advice. Statistics and other data may be from other sources and may be inaccurate or incomplete. See Full Disclaimer.

The market is the news!

 

emailEmail this to a friend

HOME | WHO WE ARE | WHAT WE DO | INVESTMENT INSIGHTS | FAQS | SUBSCRIBE

PRIVACY POLICY | TERMS | DISCLAIMER | SITEMAP | CONTACT

COPYRIGHT 2009 INVESTOR BOOT CAMP ONLINE