|
|
 |
The North Star Of Market Indices
by David Elliott
President Orlando Investors Group
(The Orlando Chapter of USIC)
What I believe we are seeing in the markets today is the effect from expanding the money supply that is now at an annual growth rate of over 20%. The money supply expansion has finally taken hold in both the markets and the economy.
Greenspan expanded the money supply in 1998 to save the banking system during the currency collapse in Asia, and the Long Term Capital Investment Company collapse. Had he not, we might have had the market correction over with by now after having crashed two years earlier instead of later.
The effect in 1998 was to have a huge pop in the markets that had nothing to do with earnings. A large amount of that money supply growth made its way into the financial markets. For many financial indicators of market health, 1998 was the high water mark for our current markets.
Should this next quarter's earning not meet the lofty P/E's we are seeing now, then we will most certainly, in rapid manner, revisit this year's, and possibly last year's, lows.
So how can we trade and track the QQQ, the most liquid of all indices, to catch these major moves? In addition, how could we have captured the current sharp reversal of January and February's down market trading the QQQ's? We know that market direction, when it reverses, definitely effects our stock portfolio. Getting on the right side of the market at the right time could help save us from picking the wrong stocks at the wrong time.
What I have found recently is that the NHB (N.Y. Beta Index of stocks) and the DJ-65 have been tracking the overall market direction better than most all of the other indices. And they are doing it without all the many trend line and moving average breaks seen in other commonly followed indices.
For those that know how to draw trend lines, it should help simplify some of those market direction questions. What it requires is drawing the support and resistance lines for each market direction. Those two indices, NBH and DJ-65, with trend lines, in ADVANCE, have indicated each major recent turn in the QQQ to date, without the whipsaws currently seen in the QQQ trend lines.
This trend line method gave short, or cash signals, for the markets in August and September before the sharp drop during the 9/11 crisis.
Recently the NBH broke out of its down trend line on 2/26, and the DJ-65 on 3/25. These confirmed the earlier DJ-30 turn around.
Most technical analysis on these indices also gave positive divergences from double bottoms made by some of the indices in February. The turn was also verified by internal market studies such as the the New High/ New Low Ratio, and most of the other internal market indicators found on most software platforms such as TC2000 and the Mentor Center.
So, the next time the markets want to take a long break to the down side, don't be caught by surprise. Follow your North Star.
|
