In this month's newsletter we're going to be looking at how the stockmarkets and Gold & Silver markets have performed so far this year. And see where they're likely to be heading in the future.
On page 3 we talk some more about ETFs and also suggest you should sign up to the excellent free Daily Reckoning email newsletter. On page 4 Barclays Stockbrokers gets the thumbs up.
Finally, many people don't realise just how critical a good credit report is because it keeps your financial options open, ie access to the best deals and interest rates. And not only that, many firms are now using credit ratings to screen job applicants! We show you how to give your teenage children a great head start in life by securing them an ultra clean credit file - More
1st Quarter Market Update
Back in the January issue of the Newsletter we looked at the outlook for the stockmarkets in 2006. The gist of the piece was twofold –
- There was little point in doing any hardcore analysis or research into the stockmarket because all investors have to do is follow the American Securities/Dealer index (stock code XBD), ie if that continued to make new highs there is no way the market is going to peak, so stay long
- As the XBD back in Jan was at multi-year highs expect the market to move higher
So How Is The XBD Indicator Working
Excellent. Both Wall Street and London have pushed higher so far in 2006 making 5-6 year highs across the board. And with the XBD continuing to power ahead it again looks like a dangerous trade to bet against the markets. In our view there are only two ways to approach the markets for the next 3-6 months -
- Stay invested, or
- if you believe things are toppy take all or partial profits but don't try and be clever and attempt to pick a top which in a situation like this will rely far more on luck than judgement
XBD Daily Chart
A Recap On Why The XBD Index Is So Useful
The stockmarket bull run since 2003 has been built on finance and financial trading, not from making things or industry.
The raw materials of the banks and brokers is money and when there's so much around they're the masters at using it to make more. Just look for example at the recent profits that are generated from ‘trading' and ‘trading related activity' by the big Wall Street firms and to a lesser extent the London brokers/dealers. Some are even arguing that firms like Goldman Sachs are nothing more than massive trading funds with M&A, stockbroking, client fund management, raising capital etc as minor sideshows.
So as long as these firms continue to milk the market and produce superior returns, Wall Street and the London stockmarket are unlikely to be heading lower. The only thing that could disrupt the status quo is a bolt from the blue but the odds against that happening are slim.
Keeping Things Simple
This website has long been preaching that one of the keys to success in trading and investing is to keep things simple - See our article on the 3 foundations of successful trading. And that's another reason why we like relying on the XBD index so much because our big picture stockmarket analysis takes a few minutes a week. We're not saying that things are always this simple but right now they are so why try and complicate things.
Right now we're using the XBD for our analysis on the London stockmarket because it's highly unlikely that London or any other Western stockmarket is going to move in the opposite direction to the XBD and in turn Wall Street.
Summary
- If XBD remains strong - We remain long and generally unconcerned about falling stockmarket prices
- If XBD is flat and/or doesn't confirm general Wall Street strength, ie the Dow, S&P 500 continue to move higher but XBD doesn't make new highs - We'll start forecasting a trading range for the markets
- If XBD starts going down - Look out below, the bull run will be well and truly over and financial chaos will hit the markets.
