A classic way to predict where the market is going
A common way to predict a market’s next move, is to compare one exchange against another.
For years the ALSI followed the SP500 index. When the SP500 moved up, the JSE followed. When the SP500 crashed, a few days later the JSE crashed.
But the ALSI stopped following the SP500. In technical terms we say the correlation went from positive to negative.
And so, my search renewed to find the next leading index. After doing some intensive programming with a whole lot of algorithms and formulas, I identified the next leading index.
IBEX 35 – Spain’s main index - Bolsa de Madrid.
The ALSI had a strong correlation and in this time I grew my portfolio over 300%. A few years later, the correlation turned negative.
Now I believe I’ve uncovered the next index that will predict where the JSE is heading
Before I continue, I need to point out something important.
It is not a trader’s job to find reasons why different indices move with others, but only to anticipate, act and profit on it.
You can speculate with certain fundamentals until you’re blue in the face, but you’ll find that it will just confuse you more.
All you need to know is which index follows which and how strong the correlation is.
The current index, according to my relative strength calculation, that is leading the JSE comes from Japan and is the main index of the Tokyo Stock Market.
The Nikkei 225.
To explain this better let me compare the ALSI Top 40 (Grey) and the Nikkei 225 (Colour) charts by overlaying the charts.
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The Nikkei is predicting the ALSI’s next big move up
1. The ALSI and the Nikkei went up exactly simultaneously
2. The ALSI and the Nikkei went up together
3. The Nikkei PREDICTED the crash
4. Nikkei IS PREDICTING that the ALSI will go up from here
The above chart is just to show you what the results look like in chart form. It is evident the Nikkei is leading the ALSI at the moment.
What is most important to note is this. In the middle of September, the Nikkei broke out of its sideways range and has now entered into a new uptrend.
This means we can expect the ALSI to break out of its sideways range any day now.
Once it plays catch up, we’ll see it run up to a new high. This means once the ALSI starts a new uptrend soon, my Red Hot Trader
members and I will be given whole lot of buying profit opportunities.
“Wisdom yields Wealth”