By guest contributor Chris Kimble
May 18, 2011
Sometimes it can pay for investors to put their money in a “Shoe Box” (not have monies at risk). If investors had put their money in a shoe box in 1929 (prior to the Dow declining 90%), 3 years later they would have had a 900% gain in purchasing power! The equivalent of 100% gains in purchasing power would have been the result of putting cash in a shoe box during the broad market declines from 2000 to 2003 and 2007 to 2009! How can that be? Check the math here.
The two indicators posted on the chart below are designed and driven by different types of sensitive credit issues in the economy. I’ve found that since the late 1990’s both have been leading indicators of equity reversals, both to the upside and downside. <br clear=all>
Click for a larger image
As the chart illustrates, these credit sensitive tools turned down a few months before the real downside movement in stocks got started. On the flip side, the “death of higher stock prices” has been suggested for months, yet key equity indexes are within a few percent of their 2011 highs and the Russell 2000 is within a couple of percent of its all-time high.
I am of the belief that risk management/capital preservation is as important as capital appreciation. Of late we have faced concerns about Greece, Japan’s Tsunami, challenges in the Middle East, and U.S. Federal debt issues, yet these indicators (so far) have been on a buy signal and benefited investors who listened to their message. For the most up-to-date Kimble analysis, check out Chris’s blog: Kimble Charting Solutions.