I am primarily a momentum investor. I seek out the strong country stock markets and pick stocks in them. A good indicator of the strength of a stock market is the country's benchmark stock index. To gauge the strength of a stock index, I use the following indicators; Moving averages 52-week high 52-week low These indicators can be used for any financial security - individual stocks, bonds, commodities, or cryptocurrencies. I created a website showing a table of global stock indices (data is updated daily) ranking their performance based on their price momentum. The indices can be sorted according to their performance with respect to key moving averages(21days, 50days, 200days), 52-week high and 52-week low. From there, you can tell which are the stronger markets. Source Why do I like these parameters like moving averages, 52-week high and 52-week low to gauge momentum strength? I like to keep things simple. This is why I like moving averages. They are easy to interpret. When the price is above the moving average, it is strong action. When the price is below the moving average, it is weak action. How to gauge momentum strength in the short-term to the long-term? This is easy with moving averages. For the short-term, I use a 21-days moving average. For the long-term, I use a 200-days moving average. The longer the timeframe, the higher the number of days used in the moving average. For the strongest momentum stock, I like to look at how near the price is to the 52-week high. When a stock is near the 52-week high, most investors who bought the stock in the past 52 weeks will feel like a winner. Many would-be investors who did not buy will feel like they have missed out. Resistance at this price point is low because few holders will want to sell. Why would you sell when you feel like a winner? On the other hand, there will be many buyers coming in because of the fear of missing out. Unfortunately, buying high carries the risk of suffering a strong reversal. That is the risk that momentum investors have to tolerate. For beaten-down stocks, I prefer to buy when they rebound and not when they are on the way down. I look at how much a stock has risen from the 52-week low when buying beaten-down stocks which are showing signs of recovery. Although I seldom buy on the way down, I think this is a workable strategy but the investor needs to have a strong stomach for huge, temporary losses assuming the investment does work out later. If the investment turns out to be a terrible one, you may end up as one of the big shareholders of a bankrupt company. Know what fits you and choose your method accordingly. When evaluating a country's stock market, do not neglect the currency. I have observed that countries with persistently high inflation tend to have strong-performing stock indices. Take a look at Argentina and Turkey. The gains from stocks will be negated by a weak currency. Hence, I have included the effects of currency when ranking the performance of country stock indices. After I am satisfied with the strength of a country's stock index, I will either buy the index ETF or I will start looking at individual stocks in the country. A stock index represents the big blue-chip companies in that country. It is not representative of the broader stock market. The broad stock market can be weak despite having a strong stock index. To help me gauge the strength of the broad market, I developed this "Stock market internal statistics" table. I will talk more about it in a later post. Source
These can definitely help for sure in defining ranges and overall trend. Be interested to hear how you use them to enter and exit trades
Exactly why so many lose. And not just those buying high who can get caught in a strong reversal but those who bought previous who feel like a winner have nary a thought of selling .... when the risk is highest. Think of it. Risk is not just the possibility of a losing trade but also the possibility of losing a big potential gain. But people are giddy and greedy and want more just when they should be thinking oh no.
I've always believed it's not where it goes that matters, but how it gets there. But I assume you've been successful and that's why you're posting this, to help others, so keep it up and more power to you.
Can't disagree with any of this, pretty much my own framework. But what made you choose Spain and Belgium in Europe rather than France, Germany and the UK, much larger economies? Or Italy.
France, Germany, UK stock indices are on the list of indices that I monitor. In the screenshot I captured in the opening post, these indices were not shown because they were ranked near the bottom at the point of writing. In total, 47 stock indices are monitored. My PC monitor is not large enough to do a screenshot of all 47 stock indices. To see the full list, please go to this website. Here's a screenshot of the bottom-performing stock indices year-to-date.
Very useful information. I always check the country ETFs that are making new 52-week highs. The UAE ETF is pretty amazing. Its done better than even KSA and its gone straight up since the March 2020 lows but it is pretty illiquid. UAE ETF is mainly real estate development & banks. I guess they must be building a lot of infrastructure.
This is a continuation of the previous post where I talked about the software I developed for observing stock indices. Stock indices alone are not representative of a country's stock market as only the big companies with large market capitalization are represented. The vast majority of smaller individual stocks are not. To give a more accurate picture of the entire stock market, I created this website which shows the stock market internals of the world's major economies. Source The percentage of stocks listed in the country's stock exchanges above key moving averages(21day, 50day, 200day) are shown in the table. When a stock market is bullish, at least 50% of stocks listed on the exchange will be trading above the key moving averages. I use the 21day moving average to represent the short-term time frame, 50day moving average for the intermediate time frame and 200day moving average for the long-term time frame. When a stock market is in a strong bull market, more than 50% of stocks will trade above all the key moving averages. The opposite is true in a bear market. When a stock market is in a strong bear market, more than 50% of stocks will trade below all the key moving averages. Another metric I use to measure the bullishness of a stock market is the number of 52-week highs versus the number of 52-week lows. Stocks that hit 52-week highs are among the strongest momentum stocks to the upside while stocks that hit 52-week lows are among the strongest momentum stocks to the downside. In a strong bull market, the number of 52-week highs vastly exceeds the number of 52-week lows. Conversely, in a strong bear market, the number of 52-week lows vastly exceeds the number of 52-week highs. The stock markets of the two largest economies in the world (27Apr2022) have gone bearish. Here is an example of what the numbers for bear markets will look like. As of 26Apr2022, China is in an extreme bear market. Seldom do I see worse numbers. Only a puny 4.62% of Chinese stocks are above the 50-day moving average. 1943 Chinese stocks have hit a 52-week low versus only 7 52-week highs. Value investors like to hunt in bear markets because that is the time when they can find the most stocks that meet their valuation criteria. Momentum investors like to hunt in bull markets because that is the time when they can find the most stocks that meet their momentum criteria. Both methods seem to contradict each other but both methods make money. Each of us has to try out different methods and see which one fits us best. As a momentum investor, my personal preference is bull markets, even though I do not disagree when value investors say the best time to buy is in a bear market. I use these internal stock market metrics to identify bull/bear markets and then react accordingly.