Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets Leading Indicators : Part1

Stock-Markets / Global Stock Markets Apr 26, 2007 - 01:31 AM GMT

By: Donald_W_Dony

Stock-Markets

After over four years of near uninterrupted advancing, the stock markets have now pushed through into all-time highs. The question for most investors is centred on the probability of the continuation of this current trend. Recent fundamental data points to the risk of a cooling economy in the second half of 2007 accompanied with lower interest rates.

Concern for the U.S. housing market and its potential impact also looms over the gradually expanding North American economies. Yet in spite of these challenges, equity markets trade higher month after month. This report is the first in a two part series reviewing the key leading indicators of the stock markets and their implications.


The Dow Jones World Stock Index (Chart 1) is the best measure of global equity markets. This index of over 3,000 companies from 120 countries shows a clear path of higher numbers moving into the summer months. Technical evidence from the main trading cycle (lower portion of Chart 1) indicates a low in mid-April and rising throughout May and June.

Recognising the primary trend for this pulse of world stock markets is very important for understanding and forecasting future market movements on individual equity indexes. This is because global markets are so tightly linked together nowadays that the possibility of a separate major index moving counter to the path of the majority is highly remote. Stock markets trend in unified directions today thanks to the instant exchange of information. World stock indexes from completely different regions of the world and economies will turn in the same week and often on the same day. Therefore the trading direction of this key index speaks volumes about the future direction of individual markets. The target for the Dow Jones World Stock Index is 319 by late summer.


Financial sectors are reliable leading indicators on the general equity markets because this group reacts faster to rising or declining interest rates. Chart 2 displays the exchange traded fund (ETF) of the S&P Global finance iShare. This security continues to advance higher with mounting buying volume. The main trading cycle, like the Dow Jones World Stock Index, has reached a bottom in mid-April and will be gradually turning up over the next few months.

As world economies continually expand over the next year or two, increasing inflationary pressures will develop. This action should force central banks to slowly raise their rates which ultimately will reduce the profit margins within the financial sector. This reduction of profits is manifested in lower share prices. Financial groups will feel this pressure first before most other sectors. For this reason, the financial group is regarded as a very important leading indicator.


The Dow Jones Utilities Average (Chart 3) has a excellent track record for leading the Dow Jones Industrial Average and especially at market peaks. Utilities, like financials, are highly leveraged to interest rates. Over the past 60 years, the Dow Utilities Average has lead the DJ Industrials in 7 out of 9 major tops. With the other two times, it moved with the Industrials once and lagged once.
Presently, this average has advanced to a new high. Technical data from the main trading cycle (lower portion of Chart 3) indicates a rising pattern in May. Currently the Dow Jones Utilities Average is displaying no signs of weakness as it moves into summer.



In Chart 4 of the Broker/Dealer sector, this group, after having a healthy run up in 2006 and 2007, now appears ready to consolidate in May and June. Key support for this group is at 220. If the Broker/Dealer index were to fall below this line, then the primary trend will have changed from up to down. The importance of this sector is that it displays whether corporations are optimistic or pessimistic about the future economy. Organizations are more willing to float new IPOs (initial public offerings) when they feel the near-term economy is buoyant and expanding. Broker/Dealers profit from this enthusiasm by structuring and underwriting the new offer. This group sometimes leads the general stock markets but it also often moves in conjunction with the averages.

MY CONCLUSION: Chart 1-3 all remain positive with additional growth anticipated moving into the summer months. Chart 4 of the Broker/Dealer sector remains flat which is neither negative nor positive. A decline through the 220 support level would cause some concern, but current levels only call for a watch and wait approach.

More analysis about the stock markets future trading direction is available in the April newsletter. Go to www.technicalspeculator.com and click on member login.

Your comments are always welcomed.

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

COPYRIGHT © 2007 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).


© 2005-2019 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