I Told You So!
As you are reading this, I will be sleeping on a cross Pacific flight, returning home after a fun filled six weeks in Asia. I capped off my Online Trading Academy Singapore tenure by teaching an Active Investor Course and a Broad Market Analysis Course. In teaching these classes, I was reminded as to how important it is to not lose focus of the broader markets and the macro economy.
I want to remind you about an article I wrote back on April 30th of this year called, "Going Down?" In that article I was predicting more doom and gloom and a turndown in the markets. I estimated that if we were to continue in our recessionary path, that we should expect to see a peak in commodity prices somewhere in early summer. I was a little early there but the peak did occur in the CRB Index (the commodity index) in early July. This is right on schedule for a recession starting in September.
I also wrote: "If we are headed toward economic turndown and a recession, we should currently see sectors that mark the peak of the stock market outperforming the others. This would include Materials, Energy, and Consumer Staples… You should expect to see a rotation into consumer staples, healthcare and utilities in the next few months if the economy continues to decline."
In the figure below I have included the sectors as they looked when I wrote the article in April. Indeed Materials and Energy were running hot at that time.
Now as part of the Active Investor and Broad Market Analysis classes this week, we looked at the sectors and focused on how to rotate our investments and trading in the sectors due to the current economic environment. Below is a snapshot of the current sector environment. Note the change?
If you had become a defensive player when I warned of market weakness in April, you should have moved into defensive sectors such as Consumer Staples and Health Care. Consumer Staples, which includes items such as beverages, food, cosmetics, and tobacco, has risen over 9% from the end of April until now. The health care sector including pharmaceuticals is up an astonishing four months! The S&P 500 is down 8.4% in the same timeframe. How is your portfolio?
If you are not aware of how macro economic events can effect your trading, you must educate yourself. Understanding these rotational effects enables you to increase your earning potential and most importantly, avoid dangers lurking in the markets. Start by heading to your local Online Trading Academy and signing up for the Broad Market Analysis or Active Investor classes.
Until next time, may your trades be green and your losses small! |
A member of the Market Technicians Association, the Chartered Financial Analyst Institute, and now holding the Chartered Market Technician Designation, Brandon has appeared as a guest on CNBC Asia's Cash Flow and conducted special seminars for CNBC staff on technical analysis. He has published articles in The Trader's Journal Magazine and was interviewed in Share Investor Magazine. Brandon was also an industry expert speaker at the Asia Traders and Investors Conference 2008. As a former stockbroker, brokerage trader, and hedge fund trader, Brandon brings various market views and insight to his trading classes and lectures. A wealth of knowledge, he has held NASD securities series 7 and 63 licenses. An Online Trading Academy graduate himself in 1998, Brandon has been trading equities, options, forex, and futures in his own account since.