Last week I mentioned how concerned analysts and journalists were at the "advanced" age of this eight-year, six-month-old bull market – though, in fairness, these same folks were fretting about age when the bull turned four… five… six…
Now, age is certainly something to keep in mind (preferably at the back of your mind) when you're in the markets, but by no means should it be the thing driving your thinking or trading.
It bears repeating: The market's all-important narrative – the "case for investment," the broader economic picture driving prices and earnings, and informing the trading public's perceptions – should be uppermost on your mind.
That's because the narrative will tell you which stocks and sectors are likely to advance and decline – where money is flowing in the markets. More importantly, the narrative will point you to the profitable price "extremes" like the ones we exploit when we take down triple-digit gains in Stealth Profits Trader.
Right now, the narrative is still driven by growth prospects, though it's competing with a Fed policy-driven narrative. That competition's not going to last forever, and when the changeover happens… watch out.
Fortunately, I've got some charts that will show us how we can measure, empirically, the strength and state of the bull market, and how likely it is to drop at a given week.
More importantly, these indicators can warn us about trouble ahead – before it breaks all over the markets and chews into returns.
Here Are Numbers I Watch All the Time
In the old days, miners were said to have carried a few song birds underground with them at all times. The thinking was, they say, that any dangerous gas slowly creeping into the miners' subterranean workspace would overwhelm the canaries first, giving the humans time to get out of Dodge before the air grew totally lethal.
So having a "canary in the coal mine" is useful for giving you advance warning of any changes you need to know about.
I've got a couple of canaries that fit the bill perfectly:
- The cumulative advance/decline line that shows how many stocks are participating in the bullish ride; and
- The strength of the global market
Let's have a look…
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.