When your lost, follow the Bellwether:

A bellwether is an important stock that is a component of a bull market. If the bellwether is healthy, so is the broader market. If the bellwether gets into trouble – run. A bellwether should be a component of a key sector such as the Financial, Industrial or Technology sectors. Rarely do we find bellwethers in the Consumer, Energy, Health Care and Materials sectors

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. The sheep in this example would be the investment sheep that tend to follow the shepherd to safety or slaughter. Shepherds can be found in the business dailies and on business television. The problem is the investment sheep have no idea who the good and bad shepherds are and so the best strategy is for the sheep to follow the bellwether.

In the U.S. market one important bellwether is the technology component Cisco Systems, Inc. Cisco is a proxy for to-day’s global technology space and a healthy Cisco is a condition for a bull market in global equities.

Our chart is the weekly closes of Cisco spanning about 8-years. I have overlaid the two important stock cycles – the longer term bull & bear cycle and the shorter term weekly or intermediate cycle. Here is how to read the two. Firstly note the importance of cycle summation which occurs when the longer and shorter cycles are running in the same direction. So when the monthly and the weekly cycles are turned upward we tend to get a big advance and when the longer monthly and the weekly cycles are turned downward we tend to get big declines. The other trick is to count the weekly cycles in a monthly bull (5) and the weekly cycles in a monthly bear (3). So far we are looking good with a monthly up cycle and a pending 2nd weekly up cycle.