Post by ketch00 on Nov 27, 2020 17:35:40 GMT
The sector turnover analysis attempts to relate the current strengths and weaknesses of the stock market to the general business cycle based on the relative performance of the 11 S&P sector ETFs. Once you have identified the strong and weak sectors, you can then compare the results with the theoretical business cycle diagram - hopefully - identifying which part of the business cycle the market is in. This information, in turn, may help you predict which sectors will strengthen in the coming weeks and months.
Business cycle
The diagram below illustrates the ideal business cycle and relationships between markets during a normal inflationary environment. This course map is based on one illustrated in Intermarket Review by Martin J. Pring . The business cycle is shown as a sine wave. The first three stages are part of an economic downturn (weakening, bottoming out, and strengthening). Stage 3 shows the economy in the contraction phase, and is starting to consolidate after the bottom. When the sine wave crosses the midline, the economy moves from contraction to the three stages of economic expansion (consolidation, rise, and weakness). Stage 6 shows the economy in an expansion phase, as it began to weaken after the summit.
Intermarket analysis and free forex signals
The first stage shows a contraction of the economy and a shift in bonds as interest rates fall. Economic weakness favors loose monetary policy and lower interest rates, which is bullish forex signals for bonds.
Stage 2 indicates a bottom in the economy and the stock market. Although economic conditions have stopped deteriorating, the economy is still in an expansion or actual growth phase. However, stocks expect an expansion phase by declining before the deflationary period ends.
Stage 3 shows a major improvement in economic conditions as the business cycle prepares to move into the expansion phase. Stocks are rising and commodities expect an expansion phase through the upside.
Stage 4 represents the period of complete expansion. Both stocks and commodities rise, but bonds decline as expansion increases inflationary pressures. To combat this, interest rates start to rise.
Stage 5 represents the peak of economic growth and the stock market. Although the expansion continues, the economy is growing at a slower pace because higher interest rates and higher commodity prices lead to losses. Stocks anticipate the contraction phase by peaking before the expansion actually ends. Commodities remain strong and peak after stocks.
Stage 6 indicates a downturn in the economy as the business cycle prepares to move from an expansion phase to a contraction phase. Stocks were already moving lower and commodities are now turning lower in anticipation of lower demand from the ailing economy.
Bear in mind that this is the ideal trade cycle in an inflationary environment. Equities and bonds advance together in stages 2 and 3. Likewise, both retreat in stages 5 and 6. This would not be the case in a contractionary environment, where bonds and stocks move in opposite directions.
Sector rotation
www.freeforex-signals.com/ Not surprisingly, the business cycle affects the turnover of stock exchange sectors and industry groups. Certain sectors operate better than others during specific stages of the business cycle. Knowing the stage of the business cycle can help investors position themselves in the right sectors and avoid the wrong ones.
The chart above shows the economic cycle in blue, the stock market cycle in orange, and the best performing sectors at the top. The blue business cycle corresponds to the business cycle shown above. The center line represents the contraction / expansion threshold for the economy. Notice how the orange market cycle leads the business cycle. The market turns over and crosses the center line before the business cycle turns. Likewise, the market falls and crosses below the midline before the economic cycle.
The technology sector is the first to emerge in anticipation of the economy's bottom. Estimated consumer stocks are not far behind. These two groups are the big leaders at the start of an upward race in the stock market.
The upper part of the market cycle is characterized by relative strength in materials and energy. These sectors benefit from higher commodity prices and higher demand from the expanding economy. The turning point in the market comes when leadership shifts from energy to consumer staples. This is a sign that commodity prices are starting to hurt the economy.
Market climax and downturn followed a contraction in the economy. At this point, the Fed begins to cut interest rates and the yield curve stiffens. Lower interest rates benefit debt-laden facilities and businesses at banks. A steeper yield curve also improves bank profitability and encourages lending. The low interest rates and easy money eventually bring you to the bottom of the market and repeat the cycle.
Business cycle
The diagram below illustrates the ideal business cycle and relationships between markets during a normal inflationary environment. This course map is based on one illustrated in Intermarket Review by Martin J. Pring . The business cycle is shown as a sine wave. The first three stages are part of an economic downturn (weakening, bottoming out, and strengthening). Stage 3 shows the economy in the contraction phase, and is starting to consolidate after the bottom. When the sine wave crosses the midline, the economy moves from contraction to the three stages of economic expansion (consolidation, rise, and weakness). Stage 6 shows the economy in an expansion phase, as it began to weaken after the summit.
Intermarket analysis and free forex signals
The first stage shows a contraction of the economy and a shift in bonds as interest rates fall. Economic weakness favors loose monetary policy and lower interest rates, which is bullish forex signals for bonds.
Stage 2 indicates a bottom in the economy and the stock market. Although economic conditions have stopped deteriorating, the economy is still in an expansion or actual growth phase. However, stocks expect an expansion phase by declining before the deflationary period ends.
Stage 3 shows a major improvement in economic conditions as the business cycle prepares to move into the expansion phase. Stocks are rising and commodities expect an expansion phase through the upside.
Stage 4 represents the period of complete expansion. Both stocks and commodities rise, but bonds decline as expansion increases inflationary pressures. To combat this, interest rates start to rise.
Stage 5 represents the peak of economic growth and the stock market. Although the expansion continues, the economy is growing at a slower pace because higher interest rates and higher commodity prices lead to losses. Stocks anticipate the contraction phase by peaking before the expansion actually ends. Commodities remain strong and peak after stocks.
Stage 6 indicates a downturn in the economy as the business cycle prepares to move from an expansion phase to a contraction phase. Stocks were already moving lower and commodities are now turning lower in anticipation of lower demand from the ailing economy.
Bear in mind that this is the ideal trade cycle in an inflationary environment. Equities and bonds advance together in stages 2 and 3. Likewise, both retreat in stages 5 and 6. This would not be the case in a contractionary environment, where bonds and stocks move in opposite directions.
Sector rotation
www.freeforex-signals.com/ Not surprisingly, the business cycle affects the turnover of stock exchange sectors and industry groups. Certain sectors operate better than others during specific stages of the business cycle. Knowing the stage of the business cycle can help investors position themselves in the right sectors and avoid the wrong ones.
The chart above shows the economic cycle in blue, the stock market cycle in orange, and the best performing sectors at the top. The blue business cycle corresponds to the business cycle shown above. The center line represents the contraction / expansion threshold for the economy. Notice how the orange market cycle leads the business cycle. The market turns over and crosses the center line before the business cycle turns. Likewise, the market falls and crosses below the midline before the economic cycle.
The technology sector is the first to emerge in anticipation of the economy's bottom. Estimated consumer stocks are not far behind. These two groups are the big leaders at the start of an upward race in the stock market.
The upper part of the market cycle is characterized by relative strength in materials and energy. These sectors benefit from higher commodity prices and higher demand from the expanding economy. The turning point in the market comes when leadership shifts from energy to consumer staples. This is a sign that commodity prices are starting to hurt the economy.
Market climax and downturn followed a contraction in the economy. At this point, the Fed begins to cut interest rates and the yield curve stiffens. Lower interest rates benefit debt-laden facilities and businesses at banks. A steeper yield curve also improves bank profitability and encourages lending. The low interest rates and easy money eventually bring you to the bottom of the market and repeat the cycle.