InvestingHaven’s research team has a very strict method when it comes to understanding the dominant market trend. As per the section ‘intermarket dynamics’ explained in our 100 tips for successful long term investing we track a small number of leading indicators which determine the trend of the vast majority of markets. Specifically, we track 15 leading indicators for global markets. We interpret all of these 15 leading indicators simultaneously in order to derive the dominant market trend at any given point in time.
That’s correct, just 15 leading indicators to understand where all markets globally are heading, and derive the dominant market trend. The trick is to identify the leading indicators and interpret them simultaneously within their chart patterns. Together they paint a picture, and that is subject to change once or twice per year.
We see markets moving in cycles of 6 to 18 months, and some markets outperform other markets during those cycles. The aim of this page is to track, on a monthly basis, our set of 15 leading indicators.
Investopedia says that a leading indicator is “any economic factor that changes before the rest of the economy begins to go in a particular direction. Leading indicators help market observers and policymakers predict significant changes in the economy.”
This page is updated on a monthly basis, and features the monthly charts of 15 leading indicators. With this, we aim to know in which direction to look for the most profitable investments.
Dominant Market Trend in January 2019 based on our 15 Leading Indicators
The general picture is that all global stock markets stopped falling right above major support. No major harm done yet, no signs of a 2008-alike scenario as of yet. The picture does not look bullish yet. It can go both directions, but at this point in time the bulls have the benefit of the doubt. The line in the sand: 2.50 for 10 year rates, 110 in the Euro, 1300 in the Russell 2000.Forecast: global markets stopped falling at major support. No harm done yet, no signs of a 2008 scenario. Not bullish yet, can go both directions, bulls have the benefit of the doubt. Line in the sand: 2.50 for 10 year rates, 110 in… Click To Tweet
These are the price points we are closely watching in our set of 15 leading indicators as January 2019 kicks off:
- Currencies and credit markets: we closely watch the Euro above 115 for a risk-on signal, 10 year Treasuries below 2.50 for risk-off, and 20-year Treasuries above 125 for risk-off. These are the critical levels for U.S. and European risk assets like stock markets.
- Stocks may be rebounding but they need much more work to get out of the risk zone. Leading indicators are the Russell 2000 and 1300 points is the line in the sand, NYSE with 11,000 being the critical price level, Eurstoxx600 with critical support at 310 points. Below these price levels we will see a bearish 2019.
- The gold safe haven trade is set to continue to rise though this will not necessarily mean that all risk assets are bearish.
Leading Indicators: Currencies and Credit Markets
Currencies and credit markets are the most important place to look for major turning points in markets. They have determined major changes in the last decades, and they revealed ahead of time the major stock market crashes.
The Euro is, by far, the most important leading indicator in currency land. Benefit of the doubt to the risk-on bulls.
The US Dollar looks set to fall, which implies that capital will be turning to risk assets and/or treasuries. The USD does not reveal more at this point in time, we need to watch new trends at this point in time in other assets.
10-year Yields are in a twilight zone area. Below 25 nasty, above 30 favoring stocks.
20-year Treasuries stopped rising at major support. The million dollar question is what’s next. We are at a major decision point. Note the small area between support at 112 and resistance at 120. Something major is about to happen in 2019!
10-year Yields in Germany: a very special setup. The decision window is narrowing down, something big about to happen!
Leading Indicators: Global Stock markets
The Russell 2000 is, by far, the most important leading indicator among U.S. stock indices. It has always forecasted major trend changes in the form of major tops or bottoms. Good news: major support is respected. Bad news: much more work needed before we get a bullish trend. For now, we are in a twilight zone when it comes to U.S. stocks, is what this index says.
NYSE composite index says the same as the Russell 2000.
This is the only market breadth indicator we have included in our set of 15 leading indicators. The NYSE composite index internals suggest deeply oversold levels. However, when it comes to the new highs minus new lows indicator (top part of this chart) we don’t want to see a series of declines to the -200 area (light green) as this would spell much more trouble for stock markets. This would happen, if and once it occurs, in conjunction with falling Yields (10-year below 25).
European stocks are similar to U.S. leading indicators: no catastrophe yet, but more work is required and 310 must be respected.
Leading Indicators: Emerging Markets
Emerging markets stocks stopped falling near their breakout level! They are forming a base which might be very bullish for 2019. The 36 to 40 area in EEM ETF is the decision level.
Emerging markets currencies, leading indicator for emerging market stocks, are bullish short term and once above 18.50 also long term bullish. They would favor emerging market stocks.
The Japanese Yen is a tricky one, always. It can never be read alone. Right now, it confirms the fear trade we see in gold and Treasuries.
Leading Indicators: Commodities and Inflation
Crude oil is an additional trigger for risk assets like stocks. The risk-off line in the sand level got respected ($41). For now it seems that crude oil will not put additional pressure on stocks.
Gold has multiple faces so it requires a very contextual interpretation. Right now it underpins the safe haven trade. We would not read more into gold’s rise. Note the critical price points on the chart for bullish momentum vs sideways consolidation in the next few months.
Last but not least, our inflation indicator is meant to show a high level direction. It is also contextual and should be interpreted in conjunction with the other leading indicators. Right now, it suggests that inflation sensitive assets are at support. Stated differently, it the other leading indicators improve it might be a strong buy signal for inflation sensitive assets like commodities.