I’ve
written a lot about recession here recently because we’ve found many who
believe we are nearing a recession or are already in one. We can do some detective work of our own to
see what the market thinks.
There
are recession clues in the market that are based on the movement of “smart
money”. For example at, or near, the end
of a recession the smart money moves into cyclical stocks anticipating that the
upturn in the market will favor the cyclical stocks like Caterpillar, Norfolk
Southern, DuPont, etc. Those are stocks
that will do well as the economy picks up.
Conversely, before a recession, the smart money will dump those stocks.
So
if we look at how cyclical stocks are doing in relation to the S&P 500, it
will give us an idea of what market participants think.
On the above chart, the green line is the S&P 500 and the blue line is the Morgan Stanley Cyclical Index. As
the chart shows, cyclical stocks are currently significantly underperforming
the S&P 500 and have done so since February of 2011. It looks like the market is suggesting that recession is coming. We'll have to watch to see if this trend continues.
(Chart
from http://finance.yahoo.com/q?s=%5EGSPC)
The
Navigate the Stock Market analysis is HOLD again today.
I sold on the 27 July sell signal at S&P 500 1301 and I am
defensively positioned with only a small amount of my portfolio invested in
stocks. (Zero stocks in the 401k.) (See the page “How to
Use the NTSM System” – the link is on the right side of this page).
