The XBD Broker Index - THE Key To Wall Street's Direction?
One of the main market commentators we follow is suggesting that Wall Street will never rollover unless the brokers first do, and we agree. The main broker index on the American market is called the Securities Broker/Dealer Index and has a ticker of XBD. As you can see from the chart below the index has been in a very powerful bull move over the last few years which shows no signs of abating.
The Securities Broker/Dealer Index (XBD) - 3 year Chart
If/when the overall market is likely to move lower then what will most probably happen is that this XBD will trade sideways and churn for many months before plunging. Remember, the brokerage industry is very cyclical, when they make money no industry or sector does so as quickly or turns in such massive amounts but when things start to go wrong they go very wrong, and almost nobody is better at generating losses.
To sum up, keep a very close eye on the XBD index because it's highly unlikely that Wall Street can move lower without the index confirming any such move.
The Constituents Of The Securities Broker/Dealer Index (XBD)
| Ameritrade Holding Corp |
AMTD |
| Lehman Brothers Holdings Inc |
LEH |
| Bear Stearns Companies Inc |
BSC |
| Merrill Lynch & Co |
MER |
| E*TRADE Group |
ET |
| Morgan Stanley Dean Witter &Co |
MWD |
| A.G. Edwards Inc |
AGE |
| Raymond James Financial Inc |
RJF |
| Goldman Sachs Group Inc |
GS |
| Charles Schwab Corporation |
SCH |
| Jeffries Group |
JEF |
| TD Waterhouse Group Inc |
TWE |
| Legg Mason Inc |
LM |
|
Wall Street Summary
The more we look at the XBD index and the arguments behind using it, the more we like it. The availability of cheap money and massive liquidity has been THE driving force behind higher stock prices on Wall Street, and also nobody knows how better to use this liquidity to generate profits than the Wall Street firms themselves. The brokers are likely to be the first ones to feel the chill when things start to dry up. Keeping a close eye on their share price performance makes a lot of sense and keeps things really simple from an analysis point of view.
To sum up, don't expect Wall Street to go down until revenues and profits of the brokerage firms start to come under pressure and we'll be able to see this via the performance of the share prices combined in the XBD.
