Do Bullish Investors Have an Ace in the Hole?
Posted on October 26, 2011 at 06:00 AM EDT
Right now, there are planes full of travelers heading to Las Vegas with dreams of striking it rich. These starry-eyed gamblers would greatly improve their odds by learning how to count cards. Yet, as we learned in the movie "21" , where six MIT students team with Micky Rosa to become expert card counters and "bring down the house," this highly illegal technique carries dire consequences. You may not be able to count cards at the blackjack table, but counting historical trends of the stock market and discovering inflection points are not only legal strategies, they are essential to successful investing. One "card" worth counting is the Purchasing Managers' Index (PMI) , which measures the manufacturing strength of any given country. A rising PMI indicates a growing economy and is considered a leading indicator . There are three different types of indicators: coincident, lagging and leading. PMI is considered a leading indicator, meaning its movement historically occurs three to six months before the market reacts. In China, the PMI just crossed above the three-month moving average. Historically, there's a 67% probability that Hong Kong and China stocks, as measured by the Hang Seng Composite Index , will trade higher over the following three months when this happens. So far in October, the index is up 3.2%, and if this historical trend is sustained, we should see continued positive performance. To continue reading, please click here...