6/22/2008 12:04:05 PM
Bi-Weekly Stock Barometer No. 181
Oil, Housing and the US Dollar, oh my.
Welcome to the biweekly stock barometer. This article comes out every 2 weeks and gives our big picture view of the market. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so too can our interpretation as the market gives its daily clues to the future. Or sign up for our free weekly newsletter, where we provide up to date articles from our various trading services.
We also offer a free weekly indicator chart if you visit our home page and scroll to the bottom. This chart will be updated each week, so be sure to check back frequently for updates. www.stockbarometer.com - don't forget to scroll to the bottom.
First, let me take care of some administrative stuff for readers:
The barometer has issued a Sell Signal, placing us in Sell Mode.
For those new to this service, this triggers us to close our long position in the Qs and go short the Qs and/orexchange a position in a bullish rydex fund for a bearish rydex fund.
Here are my thoughts about this signal. The first thing you'll say is that the market has gone down quite a bit of late. Yes, but that's mainly on the NYSE side of the market, our signals are for the QQQQs. The Nasdaq relative strength has been high. This is normally a bullish sign. Although periodically the Nasdaq relative strength will remain high as the Dow and S&P drop - but then catch up all of a sudden. That's what I believe will happen this week.
Next, we're coming up on a key reversal date in about a week (see list of dates below). So Ithink we'll see the Dow and S&P remain weak, but relatively stronger than the Nasdaq as they're all close to a bottom in the longer term. In fact, we are close to a significant intermediate/long term bottom. This is where some big money will be made as the average investor is scared out of the market and the experienced investors are poised to make their big moves.
So what's an investor to do? That's easy, sit back, be patient and pay even more attention to the market as it goes through these bearish gyrations. This is where the big opportunities come from. And opportunities like these don't come around all that often - in fact, levels like this have only been seen a few times in the past few years as we showed in our article on Monday.
On to this week's charts.
Message From The Markets
Market action is ruled by sentiment and by monitoring market internals and studying sentiment you can reasonably predict future market movements. The basis of the Stock Barometer system is overlaying extremes in sentiment with sound technical analysis to predict the likelihood of future price movement. Each indicator and chart measures the hope, fear and greed of investors and traders from different angles. Follow along with my charts and over time, you'll also learn to understand how to read the markets, which is essential prior to setting up each and every trade.
STOCK BAROMETER CHART
The Daily Stock Barometer is a proprietary measure of market energy. The direction of the stock barometer determines our short-term outlook on the market's direction. A BUY or SELL signal is triggered when the indicator clearly changes direction. If the line is moving up, we are in BUY MODE and if it's moving down, we are in SELL MODE. The black line is a 5-day moving average that we use to confirm changes in direction. We may wait for the QQQQs to break support or resistance before changing mode.
EQUITY PUT CALL RATIO CHART
The CBOE put/call ratio is comprised of two sets of data; equity options and index options. The index component contains items that are used as a hedge, thereby distorting the correlation and interpretation of the indicator. I use the equity put/call ratio. This is one of the most accurate read of investor's fear and complacency.
TRIN/ARMS CHART
Richard Arms developed the arms index. It is also referred to the Trading Index or TRIN for short. It is a measure of the ratio of up stocks and down stocks divided by the ratio of up volume and down volume. Our Spread Chart converts the arms index data into momentum Buy and Sell Signals.
TICK CHART
The tick index is represents the sum of all stocks ticking higher minus all stocks ticking lower (a stock is said to be trading on an up tick when it trades at a higher price than the last sale). It's utilized as a day trading tool as it gives you an up to the second read of the intensity of buying and selling.
BREADTH (ADVANCE - DECLINE) CHART
Each day several thousand stocks either advance, decline or remain unchanged. The number of advances and declines normally ranges from +2500 to -2500. A high number of advancing stocks normally marks a top just as a high number of declining stocks normally marks a bottom. Monitoring the 5 and 13-day moving averages of this allows us to better predict future prices.
VXO CHART
The VIX is a measure of volatility on options pricing. We use the old VIX, which is now called the VXO. The higher the volatility, the more likely the market is close to a bottom, as traders are willing to pay more premium for puts, which act as Insurance on their long positions.
Cycle Time
Monday will be day 1 in our Down cycle.
The Stock Barometer signals tend to follow a 5, 8 and 13 and sometimes 21 day Fibonacci cycle that balance with 'normal' market cycles. Knowing where you are in the current market cycle is important in deciding how long you expect to maintain a position.
Potential Cycle Reversal Dates
2008 Potential Reversal Dates: 1/11, 2/1, 2/13, 3/6, 4/5, 4/22, 5/23, 6/6, 6/27, 7/13. We publish these dates up to 2 months in advance.
Looking at the current market set up, 6/6 marked a top and 6/27 should mark a bottom. 7/13 may be close enough to be a double bottom retest of the low set next week.
My timing work is based on numerous cycles and has resulted in the above potential reversal dates. They're predictive and have nothing to do with the barometer cycle times. However, due to their accuracy in the past, I post the dates here.
2007 Potential Reversal Dates: 1/10, 1/14, 1/27, 1/31, 2/3, 2/17, 3/10, 3/24, 4/21, 5/6, 6/15, 8/29, 10/19, 11/29, 12/13, 12/24, 12/31.
2006 potential reversal dates: 1/16, 1/30, 2/25, 3/19, 4/8, 5/8, 5/19, 6/6(20), 7/24, 8/20, 8/29, 9/15, 10/11, 11/28.
2005 Potential reversal dates based on 'other' cycle work were 12/27/04, 1/25/05, 2/16, 3/4, 3/14, 3/29, 4/5, 4/19, 5/2, 6/3, 6/10, 7/13, 7/28, 8/12, 8/30-31, 9/22, 10/4, 11/15, 11/20, 12/16.
Stock Barometer Buy And Sell Signals
QQQQ or SPY Chart: A chart is provided in every bi-weekly report and shows the barometer Buy and Sell Signals (which are provided in my morning updates) as well as showing the next highlighted 'reversal' window. The numbers adjacent to the buy and sell signals are the number of days between signal (cycle time).
Here's one years of our end-of-day buy and sell signals for the Stock Barometer over the past year. They're marked on the QQQQ chart with red and blue lines (or red and blue arrows). Note we recently changed bottom and top to read buy and sell.
| • | 05/27 | Projected BUY Signal (5 days from last signal) | |
| • | 06/20 | SELL (4 days) | |
| • | 06/16 | BUY (6 days) | |
| • | 06/06 | SELL (6 days - intra day signal) | |
| • | 05/29 | BUY (5 days) | |
| • | 05/21 | SELL (4 days) | |
| • | 05/15 | BUY (6 days) | |
| • | 05/7 | SELL (13 days) | |
| • | 04/18 | BUY (7 days) | |
| • | 04/9 | SELL (19 days) | |
| • | 03/12 | BUY (2 days) | |
| • | 03/10 | SELL (3 days) | |
| • | 03/05 | BUY (3 days) | |
| • | 02/29 | SELL (13 days) | |
| • | 02/11 | BUY (8 days) | |
| • | 02/05 | SELL (4 days) | |
| • | 01/24 | BUY (4 days) | |
| • | 01/17 | CASH (3 days) | |
| • | 01/14 | BUY (6 days) | |
| • | 01/04 | SELL (9 days) | |
| • | 12/20 | BUY (3 days) | |
| • | 12/17 | SELL (23 days) | |
| • | 11/13 | BUY (4 days) | |
| • | 11/07 | SELL (7 days ) | |
| • | 10/29 | BUY (13 days) | |
| • | 10/10 | SELL (3 days) | |
| • | 10/5 | BUY (2 days) | |
| • | 10/3 | SELL (2 days) | |
| • | 10/1 | BUY (1 days) | |
| • | 9/28 | SELL (12 days) | |
| • | 9/12 | BUY (4 days) | |
| • | 9/06 | SELL (3 days) | |
| • | 8/31 | BUY (3 days) | |
| • | 8/29 | SELL (7 days) | |
| • | 8/17 | BUY (3 days) | |
| • | 8/14 | SELL (4 days) | |
| • | 8/8 | BUY (16 days) | |
| • | 7/17 | SELL (3 days) | |
| • | 7/12 | BUY (15 days) | |
| • | 6/20 | SELL (4 days) | |
| • | 6/14 | BUY (20 days) | |
| • | (historical reversal dates and performance figures are published at the Performance Page on the home page and updated at least annually) | ||
The following work is based on my spread/momentum indicators for the QQQQ, GLD, USD, USO and TLT. They are tuned to deliver signals in line with the Stock Barometer and we use them only in determining our overall outlook for the market and for pinpointing market reversals. The level, direction, and position to the zero line are keys in these indicators. For example, direction determines mode and a buy signal 'above zero' is more bullish than a buy signal 'below zero'.
Gold Spread Indicator (AMEX:GLD)
To trade Gold, utilize the Gold ETF AMEX:GLD. This gives us a general gage to the overall health of the US Economy and the markets, as well as to assists us in the entry of positions in our stock trading service.
US Dollar Index Spread Indicator (INDEX:DXY)
To trade the US Dollar, I'd utilize the Power Shares AMEX:UUP: US Dollar Index Bullish Fund and AMEX:UDN: US Dollar Index Bearish Fund.
Bonds Spread Indicator (AMEX:TLT)
To trade Bonds, I recommend Lehman's 20 year ETF AMEX:TLT. Note that the direction of bonds can have an impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.
OIL Spread Indicator (AMEX:USO)
To trade OIL, utilize AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction can have an impact on the stock market.
Summary & Outlook
We have a Sell Signal, placing us in Sell Mode. We expect the market to push lower into the end of next week and position for a longer term bottom.
I hope you enjoyed the biweekly stock barometer. This article comes out every 2 weeks and gives our big picture view of the market. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so too can our interpretation as the market gives its daily clues to the future. Or sign up for our free weekly newsletter, where we provide up to date articles from our various trading services.
We also offer a free weekly indicator chart if you visit our home page and scroll to the bottom. This chart will be updated each week, so be sure to check back frequently for updates. www.stockbarometer.com - don't forget to scroll to the bottom.
As always, if you have any questions or comments, feel free to email me here at jay@stockbarometer.com.
Regards,
