The great investment question of summer 2010: "Was the May selloff in stocks and commodities the start of hard times to come? Or just a correction to the intact rally?"
Our take: Chances are it's a correction in a bigger uptrend. But we can't know the future… So we're looking for clues from "real world indicators" like Cummins (CMI).
Longtime DailyWealth readers know we follow CMI because it's the world's leading manufacturer of high-horsepower diesel engines… the kind that power long-haul trucks, bulldozers, mining equipment, and generators. These are the machines that build the world. And since CMI powers them, its profits and share price are extremely sensitive to global economic activity.
In response to the huge government stimulus efforts, CMI shares skyrocketed from $20 in March 2009 to a recent high of $75. But this rally is losing steam… and CMI has bounced between that high of $75 and lows in the mid-$60s.
The stock market tends to look ahead by several months… so keep an eye on the new mid-$60s, mid-$70s "box" for CMI. A break below the mid-$60s signals the global economy is getting weaker. A break above the mid-$70s signals things are still humming along.
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