What do Market Leaders tell us about Market Direction?

What do Market Leaders tell us about Market Direction? Perhaps you’ve heard about the so-called “market leaders” also known as the prime movers. They’re the movers and shakers… the ones with the larger market caps and trend setting announcements. They’re the ones everyone else seems to be chasing.

No doubt several companies already come to mind… like Apple, Nike, Lululemon, McDonalds, Exxon, Coca-Cola and others. I typical use the markets leaders to help me evaluate the market’s momentum before it’s too late. In fact, any investor can look to several of these leaders and tell which way the markets are moving… and be able to react accordingly.

Today we’re going to look at a couple of these market leaders, specifically Disney and Nike, to see what they are telling us about the overall markets.

Disney

Disney is poised to breakout in 2012. With the extremely bullish tell in November 2011 of the 50% boos to their dividend, Disney was raising the flag of victory over the markets. Since no one ever wants to cut a dividend, by raising it they were sending not simply a short term signal, but a longer term forecast of strength in the US economy. Compared to previous years, when 6 out of the last 8 years the raised the dividend less than 15%, anyone can see how important this signal is for investors.

And they could do so because of some strong fundamental developments. Here’s a sampling:

  • Disney’s channel lineup is expanding and strengthening, especially ESPN.
  • Their media network business accounts for 67% of their operating income from affiliate fees, retransmission fees for ABC, etc.
  • Disney’s parks and recreation is only 17% of their operating income, so attendance isn’t the most critical component to their revenues (although, as confidence picks up, so will attendance).
  • Shanghi Disney is scheduled to open in 2016 and will be 2 times larger than the size of Disneyland in LA.

Nike

Disney is a market leader that can help regular investors gauge the overall strength of the US economy. Another market leader with great earnings is Nike. Take a look at just some of their developments:

  • A 16% dividend boost
  • Continue to dominate their sector with a recognizable brand
  • The cash alone on Nike’s balance sheet is almost as large as Under Armor’s Market Cap
  • Good management of their inventory has enabled them to hold onto what they have produced which means they don’t have to discount it to get rid of it
  • Culture, culture, culture… it’s like a sub-culture in and of itself

If you listen to the stories that markets leaders like Disney and Nike are telling us, then we are pulling out of this dismal correction that we’ve been experiencing since Spring 2011. To simply be sitting on the sidelines with your cash parked is a waste of an asset. But it may not always be this way… which is why I look to the market leaders to tell me about what is happening with market direction.

3 Comments
  1. As long as the US economy doesn’t sink back into recession, Disney should be poised to be a leader for awhile. They know how to do what they do very well and make a lot of money doing it.
    Money Beagle recently posted..Things Do Happen In Threes, Just Ask The Water FroggiesMy Profile

    • Very true… especially since they are more diverse than many people think. Either way, they are a great barometer of the overall market health and direction.

  2. They always know more and earlier than average traders. They make the profits and average traders get some bread crumbs.
    Alex @ PipBurner recently posted..Scalping in Forex: Small Steps to Big MoneyMy Profile

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