5 Ways to tell if the Market is Recovering

I thought I would post a small list of factors that will help you determine if the market is recovering each day. Basically, this is an “indicator list” that will point you in the right direction in order to determine whether the market is on the ‘upper’ or still on the ‘downer’. Bear in mind this list is by no means a complete list - I am sure that many of you will be reading this saying “oh what about this and what about that”. Sure, drop a note in the comments if you think there are more factors. These are in no particular order.

1. Market Volatility

The market “fear” measurement which will give you a fantastic indication of the approximately volatility in the market. The greater the volatility - basically, the greater the swing in fear from up to down and so forth. This is perhaps the most important factor in option trading beacuse it’s a key element of what drives stocks up or down. For the market to be improving, this indicator needs to be falling.

How will this indicator tell me if the market is improving? If it’s falling, its a good thing.

2. Gold Price

Gold is often a key indicator of market stability and when there is a rush to buy this underlying commodity - you know that something is going on in the markets. What is gold doing at the moment ? F&$king skyrocketing. So basically, people are pulling their cash out of other investments and shoving it all into the yellow metal. Gold makes mining companies richer, and investors only shove money into it if they are worried that inflation is going to devalue their money. Paper burns easily - gold, not so much.

How will this indicator tell me if the market is improving? If it’s falling, its a good thing.

3. Wheat Prices

Yes, during times of crisis we look to the price of food in a good old supply and demand analysis. Basically, if the price of wheat is falling - things are looking good. Wheat is heavily traded in the futures market along with a whole bunch of other products including sugar, coffee and porkbarrels. Check out http://www.liffe-commodities.com/ to see how they are doing.

How will this indicator tell me if the market is improving? If it’s falling, its a good thing.

4. The 3 Month LIBOR

The 3 Month LIBOR rate is basically the rate at which banks loan money to each other over (amazingly) 3 Months. It typically depends on official interest rates and most importantly, the confidence that one bank has in another thats it’s actually going to be able to pay the money back. It’s probably one of the most important indicators in the world since so much is priced off it. Every car loan, credit card or personal loan and home loans all use this rate. The quicker it falls the better as it means banks are confident in each other. Check it out here - http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=141 (its delayed I think)

How will this indicator tell me if the market is improving? If it’s falling, its a good thing.