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
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
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Top Identified by Business Cycle - Rotate Sectors for Growth

Stock-Markets / Sector Analysis Jan 29, 2008 - 09:08 AM GMT

By: Donald_W_Dony

Stock-Markets Best Financial Markets Analysis ArticleThe rhythmic rise and fall of equity sectors throughout the business cycle has told economist, analysts and investors for decades the positions of the economic and stock market cycles. Certain equity sectors typically advance at different phases of the cycles which provide important clues and can dramatically assist in portfolio performance. For example, financial's normally lead the stock market and are one of the first to decline before the market top and one of the first to advance in the late bear phase. The transportation sector is also one of the strongest performing groups in the early bull market but usually rolls over at the top signaling the end of the bull market is near.


As the stock market normally leads the economic or business cycle by 6-9 months (Chart 1), weaknesses or strengths within specific stock group can add valuable information that may not be available through standard fundamental or technical analysis. Analysts recognize that through the expansion and eventual contraction of the normal economic cycle, certain equity sectors should be stronger at specific times and overweighted in a portfolio or underweighted or even removed depending on the position of the stock market cycle.

But where is the stock market cycle now? A review of current sector performance provides many answers. U.S. equity groups that have recently rolled over in the second half of 2007 are banks, transportation, discretionary ( Chart 3), retail, insurance and semiconductors. Sectors that are improving in relative performance are food and beverage, health care (Chart 2), consumer staples (Chart 3), medical supplies, tobacco and gold.

This analysis of strengths and weaknesses would suggest a stock market that is near or at a peak. Additional information such as rising unemployment, aggressive Fed rate cuts and a shift out of small cap to safety and defensive stock groups would point to an early contraction phase of the economic or business cycle and that the peak in the stock market may have already passed.

So what lies ahead and where will be the probable strengths in the market?

As Chart 1 indicates, consumer non-cyclicals (staples), health care and defensive equity groups will likely provide the best potential for growth during this bear market phase of the economic cycle.

And when will the bottom of this present bear market develop? Watch the financials and consumer cyclicals. They will very likely be some of the first to herald the beginning of a new bull market.

Bottom line: Fundamental and technical evidence suggests that the stock market peaked in October 2007 and is progressing into a contraction bear phase.

Additional information on the business and stock market cycle will be in the up coming February newsletter. There will also be a section on the best performing equity sectors and exchange traded funds.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2008 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

Donald W. Dony Archive

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


Comments

Ray
03 Dec 08, 15:51
Growth Stocks

While I would be the first to say that buy and hold is dead. It is true, in this new era a growth stock with a healthy reliable dividend is golden.

Great post!

http://stock-market-club.blogspot.com


Post Comment

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