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Presidential Brokerage Market Light
Assessing The Current Status Of The Market:
Picture the Stock Market as a high-speed thoroughfare, with hundreds of
vehicles darting almost randomly and dangerously around you. Some cutting
you off, others whizzing past you at breakneck speed, a few driving 15 mph
in the fast lane while others are trying to pass you on the shoulder. This
super boulevard has only a few lines painted on the pavement, no passing
lanes, no turn lanes, not many road signs, and – worst of all –
no traffic signals to tell you when you are about to cross a dangerous intersection.
Needless to say, it can be scary and dangerous at times.
The Presidential Market Light gives you an instant read on the Market available
nowhere else. It distills a matrix of sophisticated indicators into one
easy-to-read, easy-to-understand image and paints an instant picture of
how cautious an investor should be in making new purchase decisions and
gives you a gauge for managing existing positions.
The Market Light is designed to help you understand the current direction,
to see when conditions are smooth and relatively safe – or not. It
gives you a heads up to shifting conditions and flashes a warning to slow
down and proceed with caution.
At times it will flash red – telling you it’s time to be extremely
cautious, treating each intersection – each buy and sell decision
– as a four-way stop. You can get through it, but it must be done
When conditions are green, it doesn’t necessarily mean any individual
stock is going to go up. It means that the market is working with you –
or at least it is not working against you. A green light means the intersection
should be clear and that you have the right-of-way. It does not protect
from the surprise cement truck barreling through the intersection and broad-siding
you; but at least if you do get blindsided, you have the satisfaction of
knowing you had the right-of-way (like that’s a consolation!).
Presidential’s Market Light will spend much time "flashing"
caution – either Yellow (when conditions are improving but not Green)
or Orange (when conditions appear to be deteriorating but not in Red). At
the bottom of the Light are the specific indicators we use -- short-term
and longer-term -- and the direction they are currently pointed.
Market Light Component:
All technical measurements in the Market Light algorithm are derived from
performance of the NASDAQ Composite. The Comp is a good measure of overall
market strength, being comprised of approximately 3,500 companies. In addition,
as often heard on the nightly business news, it is “heavily tech laden”
and contains many more small and mid-size companies than the S&P 500
or Dow Jones Industrial Average (which only has 30 big-name stocks).
Basically, when investors are putting money into the Comp, and it is outperforming
the larger-company indexes, the overall market environment tends to be bullish.
When tech stocks and/or small company stocks are in favor, it means that
investors are willing to take the higher risk they represent in return for
their heightened expectations for stronger returns. When it is time to run
for cover, investors will seek the relative safety of big cap stocks –
particularly big cap value stocks. Occasionally investors will choose to
sit on the sidelines -- taking large amounts of money out of the market
all together -- and go to cash. If the exodus from the market includes many
large investors and institutions, it can result in the selling of both large
and small companies’ shares and lead to a general market decline.
Two of the Market Light measurements speak directly to how the Composite
is performing relative to the S&P 500. This provides two important pieces
of intelligence: 1) there are times when large cap stocks outperform the
smaller cap stocks as represented by the Composite. These times typically
are short in duration, and they frequently mark difficult overall investing.
Keep in mind that it can often be hard to overcome crosscurrents of a market
in decline. And 2), when the Composite performance begins to change relative
to the S&P, it may signal beginnings of a change in market climate --
bullish or bearish.