Customer Service 1 (888) 261-2693
Advanced Search

The World's Greatest Market Timer Is Busted

By Jeff Clark
Thursday, September 18, 2008

My canary died on Monday.
 
Merrill Lynch (MER), Wall Street's version of the canary in the coal mine, agreed to be taken over by Bank of America.
 
My heart sank on the news.
 
You see, for the past 25 years, MER has been my absolute favorite market-timing indicator.
 
The action in MER was a terrific signal of market direction. The stock would often reverse course moments before the market did the same. And if you followed the action in the stock, then you could jump in or out accordingly and profit quite well.
 
I often wrote about this strategy in Growth Stock Wire. So maybe your heart sank a little last Monday, too.
 
For all intents and purposes, Merrill Lynch stock is now dead. And dead canaries are lousy market timers. So I'm looking for a new pet.
 
Maybe we can use the new Bank of America (BAC). After all, if it swallow MER, maybe it will absorb some of the canary's tendencies. But something about that doesn't seem right. It's like we're taking in the stray cat that ate our pet bird.
 
Besides, as you can see from the following chart, the action in BAC doesn't correlate well with MER's...
 
This is a ratio chart comparing the action in BAC to the action in MER. The direction of the chart doesn't matter. What we're looking for here is something close to a straight line. A straight line indicates the two stocks move in tandem.
 
 
 
Clearly, that's not what we have here.
 
Perhaps we can turn to Morgan Stanley (MS) or Goldman Sachs (GS). But neither of those has the institutional following of Merrill Lynch. And their average trading volume is less than 33% of MER.
 
So the search for a new canary continues.
 
It may take some time, but I'll find another short-term timing indicator. And when I do, you'll be among the first to know about it.
 
For now, though, we can't use MER anymore. The shares are trading more as an arbitrage position against BAC than as a leading indicator. The canary is dead.
 
Rest in peace, Merrill. You were a good bird.
 
Best regards and good trading,
 
Jeff Clark




Recent Articles
Market Notes
Gold and silver rally... both up about 8% yesterday.
 
Russian market plunging... iShares Russia and Templeton Russia Fund hit new lows.
 
Mining giants BHP Billiton, Anglo America, and Rio Tinto in freefall.
 
Insurance sector follows AIG... Genworth Financial, Manulife Financial, AEGON, and Sun Life Financial at 52-week lows.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%