{"id":440484,"date":"2010-03-17T09:37:00","date_gmt":"2010-03-17T13:37:00","guid":{"rendered":"e2249889-c78b-43e3-9643-b1d7d4aa587b:408888"},"modified":"2010-03-17T09:37:00","modified_gmt":"2010-03-17T13:37:00","slug":"leading-indicator-suggests-time-to-take-profits","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/440484","title":{"rendered":"Leading indicator suggests time to take profits"},"content":{"rendered":"<p>Breadth in economic growth fell to 88% in January, putting it below the nine-month moving average. While such a break has not prevented equity prices from moving higher in the past, Dundee Securities strategist Martin Roberge warns that the most likely scenario is what he calls a \u201cprolonged churning phase,\u201d with the odds of a sizeable correction rising slightly.<\/p>\n<p>In order to get a jump on turns in the equity market, Dundee built a diffusion index of the OECD leading economic indicator (LEI). The firm calculated that the 35-country index leads the OECD LEI and equity market turns by roughly two quarters.<\/p>\n<p>From a 100% reading in October 2009, the OECD diffusion index dropped to 88% in January, below the nine-month moving average of 97%. Mexico, India, Brazil, Greece and Norway had decling LEI.<\/p>\n<p>\u201cThis deterioration in economic breadth is meaningful as the expected return for equities drops markedly when our diffusion index drops below the 9-month average,\u201d Mr. Roberge told clients, noting that the six-month forward return drops from 6.5% to 1.8%.<\/p>\n<p>Market corrections of 10% or more typically occur when the OECD diffusion index has broken below the 9-month moving average, he added.<\/p>\n<p>This break should serve as a reminder that investors should take profits on strength throughout the year. With the relative strength index on the S&amp;P 500 and the S&amp;P\/TSX composite above 70, and both indexes again trading near 15x forward EPS, Mr. Roberge said such an opportunity has arrived.<\/p>\n<p>\u201cWe recommend investors wait to redeploy fresh cash. Otherwise, profit-taking activities or rotation into industry laggards seem a more pragmatic strategy at this point. Thus, investors should not chase price break-outs, but should expect more market churning and work with higher probabilities of a sizeable market correction later this year.\u201d <\/p>\n<p><a href=\"mailto:jratner@nationalpost.com\">Jonathan Ratner<\/a> <\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/network.nationalpost.com\/NP\/aggbug.aspx?PostID=408888\" width=\"1\" height=\"1\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Breadth in economic growth fell to 88% in January, putting it below the nine-month moving average. While such a break has not prevented equity prices from moving higher in the past, Dundee Securities strategist Martin Roberge warns that the most likely scenario is what he calls a \u201cprolonged churning phase,\u201d with the odds of a [&hellip;]<\/p>\n","protected":false},"author":4059,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-440484","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/440484","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4059"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=440484"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/440484\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=440484"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=440484"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=440484"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}