The ‘A/D Line’ Says Buy Stocks

  • You can sleep a little easier now
  • 10x the opportunity compared to Australia
  • Plus, why you should be hunting growth opportunities…

Today’s Profit Watch reveals a handy little indicator you can add to your investment tool bag. You should be watching this already.

It will give you the confidence to start buying stocks…

You’ll pay less attention to the permabears and naysayers…

It’s going to help you sleep better at night…

That’s because it suggests the US bull market in stocks can keep firing.

The biggest worry for most people is that the market is going to take a massive dive.

Such an outcome seems unlikely, based off the latest reading I’m getting.

A rising America sets the tone for the Aussie market. We’ve seen this play out already over January.

That means you should be prepared to step in and back good ideas with money.

Let’s dive in as to why…

I’m going to state the obvious. A stock ‘market’ has more than one stock. Indeed, there are thousands of different companies.

All of them are doing their own thing — price wise — at any given time.

You might hear on breakfast radio that the US market rose overnight.

But did all the stocks in a particular index — say, the S&P 500 — rise? Or just some?

This is important when you’re considering the health of the US economy and using the stock market to measure this.

The big US tech firms, like Amazon and Apple, make up so much of the big indices that they can pull them up…even if other companies are struggling.  

But the US domestic economy has many different industries.

It’s not good for America if tech firms in California are creaming it, but automakers in Detroit and refiners on the Gulf Coast are getting butchered.

Eventually, this weakness in the rest of the country will show up in poor sales for national firms like Walmart and rising unemployment.

We need some way to measure not just whether an index is rising or falling…but what’s happening within that index.

One way to do that is called the Advance/Decline (A/D) line.

It measures how many stocks are going up versus going down.

It keeps a running total.

It looks very healthy right now. It’s risen since December, alongside the market. 

See for yourself…

Source: Optuma

Here’s another thing you need to know.

The A/D line has good form, warning of major weakness ahead.

For example, it broke down in 1998…long before the tech stocks in the internet boom topped out in March 2000.

That suggested the US economy — outside of the dotcom bubble — was heading for a recession. And that’s what happened over 2001.

That’s history now.

We’re talking about today.

The A/D line is giving us a reasonable ‘all clear’ that the US stock market is broadly supported across a range of industries.

That’s a good sign for the US market…and the US economy.

Naturally, we can’t take one signal as gospel. If only it were that easy!

All we can do is find guide posts as we go along…and this is one of them.

But wait…why should you even care about the US stock market if you’re an Aussie punter?

10x more opportunity than Australia

I’ve given you one reason already. The Aussie market generally follows the lead of the US market.

But more importantly…there are many companies on the ASX battling to win in the US market.

And if they do…jackpot.  

Consider that America has over 300 million people. Australia has under 30 million.

That’s 10 times more opportunity and scale.  

Any stocks that can compete in the United States have a prodigious market to grow into.

That’s the kind of thing that can turbocharge a stock move up.

Let me show you…

There’s an Australian small-cap stock called Nearmap [ASX:NEA].

It’s up 250% since the beginning of 2018.

Part of this rise is because of the company’s potential to capture a large share of the US market.

I’m not saying that you should buy Nearmap. I’m simply pointing out that investors are always hunting for growth potential.

America offers lots of this — much more than Australia. 

And once you start exploring the ASX away from the big banks and miners, you’ll see there are lots of different businesses that can target America…and help you profit as an Australian investor.

So if you’re worried about Australian real estate…or the banking enquiry…or what the RBA is up to…remember that the US economy is worth $20 trillion a year.

That can send an Aussie business soaring if it can monetise even a fraction of that. 

And the A/D line tells us now is a perfect time to be looking for these kinds of plays.

More tomorrow.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch