An interesting 'leading' index

[bowman]

This US blogger has created a leading index made up of 6 indices which are then weighted.

The indices are those which led the market down, are leading the market up, and are used to predict turning points in the broad market.

It currently suggests a short term top is in place.

http://xtrends.blogspot.com/

 

[James Austin]

thanks Bowman,
how does he use it in real time?
afterall, its one thing to have a leading indicator thats months ahead of the rest of the market, but how does that translate into trades?
timing is important also.
JA

 

[bowman]

I don't think the index is months ahead of the broad market.

If you compare his current daily chart to the S&P 500 they are quite similar except in his index the current top looks a little more bearish.

 

[James Austin]

yes, i see.
his longer term charts seem further ahead.
but his hr chart indicates a sell-off pending,
but yet to be confirmed by S&P500

we'll wait and see . . . .

 

[tech/a]

Very interesting.
I think this sort of analysis has its place particularly when you combine conventional analysis with the chart.
Pattern
Support resistance
Volume
Volatility.

But the XJO/XAO is telling a similar story.

 

[beamstas]

Could be "curve fitting"
Or could be genuine
Only time will tell

You can correlate nearly any two things if you try hard enough

I could probably sit here and find a chart for the average weight of chinese boys 13-15 years old who are over 140cm tall and can run 200m in under 40 seconds over the last 5 years and correlate it to the spi index over the last 5 years and say that i predicted the stock market crash because the average weight of the people in the study fell at about the same time

Obviously very unlikely
Hopefully you can see what i am getting at though

Not discounting his index because it might well be robust enough to use with some degree of accuracy

Cheers
Brad

 

[bowman]

I think his whole premise is that certain sectors will lead the market down and then lead it back up again.

I've on only recently (since the crash ) started paying more attention to the 'big picture' so I can't comment whether his premise is correct or not, or even whether it's the same sectors that lead the market all of the time, but to me it seems to be a reasonably logical train of thought.

Anyway it's one to keep an eye on.
Quite a few pundits are calling a correction so we'll see how this guy stacks up this time.

 

[tech/a]

Hopefully you can see what i am getting at though

Urr No!

Could be "curve fitting"

I'm interested in you understanding and explanation of this term.

Or could be genuine

Of course its genuine.

The market is made up of many sectors
Energy
Resources
Banking
Finance
Etc Etc

Not all rise or fall at the same rate.
Those that rise strongly if in tandem with other correclated or not will and can pull the market along with it.
Often if they are the largest strongest indexes they will lead the rest in recovery but they will be the last to fall in times of weakness.

The weakest will be the first to fall---so as far as that part of his logic is concerned I think its flawed.
Those that come off first wont be the first to recover!

 

[beamstas]

Urr No!



I'm interested in you understanding and explanation of this term.



Of course its genuine.

The market is made up of many sectors
Energy
Resources
Banking
Finance
Etc Etc

Not all rise or fall at the same rate.
Those that rise strongly if in tandem with other correclated or not will and can pull the market along with it.
Often if they are the largest strongest indexes they will lead the rest in recovery but they will be the last to fall in times of weakness.

The weakest will be the first to fall---so as far as that part of his logic is concerned I think its flawed.
Those that come off first wont be the first to recover!

Example

I predicted the stock market crash because i noticed a sharp drop off in the chinese real gdp
2 months later the market crashed
So now i use the Chinese GDP to predict what will happen in the market

I just whipped up that chart then

See what i mean
Sometimes it can be a coincidence
I do concede that some indexes may lead the market
But 1-2 occurances does not mean it will happen all the time
Or will keep happenining in the future

Hope you can get my point
That if you look hard enough
You can correlate nearly anything

Not saying this guy is wrong
Because he is probably not
Most likely i am

Brad

 

[tech/a]

Brad

You do understand that the indexes we are talking about are those which make up the market in question?
Thats why it makes sence. We/he are/is comparing the core/pips/skin/flesh of the Apple to the apple to see which rots first!.
The ORDS is made up of many of them.
Not external indexes.

 

[beamstas]

I know Mate!



Cheers
Brad

 

[ivant]

Yea I know what you mean about correlating things Brad. First day of stats at uni a few years ago the lecturer put up a graph of the weather with a the title ASX. Half a lecture later he told us it was actually the weather. Looked the same. Correlated to around 70% too!