Buy on the rumour, sell on the news

Index Nov09.jpg“Buy on the rumour, sell on the news” is the classic indication of a weak market. A lack of follow-through buying reveals that market action is not supported by fundamentals, but only by sentiment and momentum.
Friday’s 2.8% fall on the US S&P 500, in reaction to Thursday’s positive US GDP number, was therefore a clear sign of underlying weakness. Equally, the new IeC Boom/Gloom Index (above) shows no increase in sightings of “green shoots”. And the Frugal Index has actually risen.
This conclusion is supported by the generally cautious tone of recent company results. The chemical industry is a well-known leading indicator for the global economy. If a real upturn was underway, the major western companies would have noticed it by now.

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