Which Way Is The Market Headed?
Summary
- Track when the Stock Market is Expanding.
- Track when the Economy is Expanding.
- Track when both the Stock Market and the Economy is Contracting.
For you to be an informed investor you must be aware of the momentum of both the Stock Market and the Economy. My Benchmark for the Stock Market is the Value Line Arithmetic Index because it is an Equal Weighted measurement of the performance of the 1700 largest stocks in our major exchanges comprising over 95% of the total US stock market capitalization. I used the Conference Board's Leading Economic Index for benchmark for the momentum of the Economy.
Each month when I track these benchmarks I can come to 1 of 4 possible conclusions:
- The Stock Market and the Economy are both expanding - I'm very bullish
- The Stock Market is expanding but the Economy is contracting - I'm cautious
- The Economy is expanding but the Stock Market is contracting - I'm cautious
- Both the Stock Market and the Economy is contracting -- I'm very bullish
Where are we today?:
Stock Market - Right now the Value Line Arithmetic Index is trading above it's 20, 50, 100 and 200-day moving averages so I conclude the stock market is expanding:
Economy - The latest Conference Board report on it's Leading Economic Indicators show a peaking and flattening our of the Economy's momentum:
As you can see the economy seems to be peaking.
Therefore I am cautious. I am still buying stocks but I use Barchart's Trend Spotter, Overall Average Indicator and the 20, 50 and 100-day moving averages to determine my exit point on each individual position in my portfolio
Disclosure: None.