Friday, August 28, 2015

When lost – follow the bellwether:

The term Bellwether - is derived from the Middle English Bellwether which refers to the practice of placing a bell around the neck of a castrated ram - (a wether) in order that this animal might lead its flock of sheep.

Question – lead to where? Green pastures or to slaughter?

When applied to the capital markets – a bellwether is usually an important stock or index – for example – the Russell 2000 – Small Caps, the Dow Transports – Economy Sensitive or the Semiconductors  In the US markets an important stock bellwether is The Goldman Sachs Group Inc. (GS) because it tends to lead the US financial space which in turn is a leader in all bull and bear cycles.

Goldman posted financial crisis peaks in May 2007 and October 2007 and bottomed in October 2008 about 4-months before the broader stock indices. Subsequent to the recent sell-off - the only other major correction was the April – October correction of 2011. The best way to ID Goldman’s bull and bear cycles is to apply a 26-week price channel test – because Goldman tends to trend within a 6-month price window. Our chart is the weekly bar of Goldman displaying the April 2011 and August 2015 violations of the 26-week low (6-month) price channel. Goldman is leading so be cautions

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