In today’s world, we are overwhelmed with financial information and more often than not, it leads to more confusion than clarity. So, let’s cut through the overload of information and focus on what truly matters – the hidden patterns of the market, which become clear once we understand these five significant asset classes. This is an approach followed by America’s Pattern Trader, Tom Gentile.
The charm of this system is its simplicity. Despite these asset classes being worth trillions of dollars, the method is straightforward, requiring only a basic understanding of the market and no expensive subscriptions. All you need to do is to monitor the markets through one or two exchange-traded funds (ETFs) for each asset class.
To evaluate the $93 trillion stock market, simply monitor the S&P 500 Index, specifically the SPY ETF. It provides a comprehensive overview of the performance of US stocks and offers a snapshot of the overall health of the market. It also helps identify crucial seasonal trends. For instance, historically, November to April is a period of robust activity, while September signals a weaker phase.
“Bond math means that prices go down (and yields go up) as inflation rises. So, if TLT is falling, it suggests that investors are worrying about inflation going up. If it’s rising, it indicates that inflation fears are diminishing.”
The $133 trillion bond market reflects investor sentiment about inflation. This can be adequately gauged by tracking TLT, an index that follows the prices of U.S Treasury bonds with maturities exceeding 20 years.
With a market worth of $131 trillion, commodities are the basic components that keep the economic system operational. Commodities’ prices generally increase with economic growth and decrease when the economy shrinks. To monitor this market, focus on two central players: oil and gold. The United States Oil Fund LP (USO) sheds light on oil price fluctuations, while the SPDR Gold Shares (GLD) ETF effectively tracks gold prices.
“A strong dollar can have a negative correlation with stocks…a strong U.S. dollar is often associated with higher interest rates, as investors flock to the safer and high-yielding U.S assets.”
The U.S. dollar’s status as the world’s reserve currency has significant global economic impacts. Monitoring UUP, an index that gauges the strength of the dollar, can be instrumental in making informed trading decisions.
Bitcoin, the world’s leading cryptocurrency, provides substantial insight into the health of the $2.5 trillion cryptocurrency market. Its performance often sets the pace for the broader crypto market. Ethereum, the second most valuable cryptocurrency, is another essential player to track.
By following these five asset classes, a clear and holistic understanding of the relentless market fluctuations can be achieved. It’s an approach used by financial experts, where updates on these classes are regularly provided.
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