If you have been trading or investing for any length of time you have heard have saying, “follow the trend.” While this is true and great advice, you should also follow the leading industry groups or sectors in the market. This will tell you where the money is flowing from the large financial institutions who move the markets.
There are so many important industry groups and sectors these days, but the financial sector still reigns supreme. Just think about it, every major depression or recession has been caused by a bank run or some other problem in the financial sector. Just look back at 2008, it was the financial stocks that were blowing up in front of our eyes. Lehman Brothers, Bear Stears, Countrywide Financial and so many others plunged into the abyss and had to be bought by the stronger financial institutions. In my humble opinion, this is the most important industry group that every trader and investor must watch closely everyday.
If and when you see this sector trade below it’s 50-day moving average then that is the time to move in real caution mode. Remember, every major crisis starts with a financial stock failing somewhere around the world. This is a global market place, so remember, a financial crisis does not have to start in the Unites States to become troublesome. So far, the financial stocks are looking fine from what I can see, but we must always monitor them on a daily basis.
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