Bi-Weekly Stock Barometer No. 186
11/16/2008 10:25:53 AM
Understanding Day Trading is essential for any style trader or investor.
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. Also sign up for our free weekly newsletter, where we provide Alerts from our various traders.
We 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.
You don't need to be a day trader to understand day trading. In fact, it can only help you and I would say it's an essential tool for any trader.
Day traders are very good at making short term decisions. At the end of the day, every trade you make comes down to two very short term decisions, when to get in, and when to get out.
It's all about availability.
Everyone that gets into trading has a different situation. Most people have a day job, so they can't really trade during the day. Although I'm sure a number of people with day jobs have internet access and availability to access their trading accounts during the day do a little bit of buying and selling.
Intermediate term Weekly traders for example make their decisions during the weekends. They use weekly charts and need the market to close for the week to evaluate their positions.
Shorter term traders, who use daily charts to initiate their positions, need to utilize evenings and weekends to do their analysis.
What's the problem with this?
The market doesn't typically change direction on weekends or overnight. Most changes in direction occur intra day.
Thus the need for every trader to have a knowledge of day trading so they can improve the entry and exit timing.
Did you know there are several day trading pivots that occur during each and every trading day?
In addition, there are many different day trading strategies that influence the markets at each of these pivots.
One of the most basic uses of pivots is using the oversold or overbought market to enter or exit a position at the 10:20 pivot.
Here's how it works. Most people awake to see futures in a certain direction and think that means the market is going to trade up or down for the day. That's not the case. It's best to look at futures from a contrarian view and consider trend. For example, if the market has advanced a few days in a row - and you're in a profitable long trade - and you awake to higher futures, the market is likely to reverse. The morning 10:20 pivot is a great time to exit your long trade.
Unfortunately most traders shy away from day trading due to all the myths out there. I'd like to shatter those myths, that's why I'd like to hear from you if you're a day trader or utilize day trading in your own trading strategy.
CALLING ALL DAY TRADERS - please email me at jay@stockbarometer.com and let me know the how and the what and the when you do in regards to day trading. We'll have a special opportunity for you coming up in the future.
Ok, enough chatting for now, 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
The arms index or also referred to the Trading Index or TRIN for short, 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 24 in our UP cycle. As we've talked about, we only issue buy and sell signals, which can also give us extended cycles when we go through a sideways move.
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 9/2, 10/3, 10/22, 11/10, 12/11. We publish these dates up to 2 months in advance.
We believe the market will move higher into 12/11.
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.
| • | 11/26 | Projected SELL Signal (26 days from last signal) | |
| • | 10/14 | BUY (11 days) | |
| • | 09/29 | CASH (6 days) | |
| • | 09/19 | BUY (11 days) | |
| • | 09/04 | SELL (41 days) | |
| • | 07/08 | BUY (11 days) | |
| • | 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) | |
| • | 03/5 | BUY (3 days) | |
| • | 02/29 | SELL (13 days) | |
| • | 02/11 | BUY (4 days) | |
| • | 02/05 | SELL (8 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) | |
| • | (historical reversal dates are published on our home page) | ||
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 remain in Buy Support Mode as the markets have been torturing their lows. We are looking for the market to bottom here and move higher into 12/10.
All our indicators are at or on a buy signal - so we are looking for a sharp rally.
Thursday's reversal was encouraging for the bulls. Friday's move lower wasn't - although the bears out there may be licking their chops for yet another move lower. This week is options expiration (Friday). And we're approaching a period of light volume holiday trade.
A benefit of day trading is that you have less exposure then investors or non day traders. If you look at investors - they're in the market 24/7. There's more exposure in the market when the market is closed than when it is open. It's technically only open for 6.5 hours. Day traders usually go to cash at the end of the night. Makes it easy to sleep. Much easier than the investor that just lost 40% of his life time investments.
There are benefits to day trading. If you'd like to participate in our day trading opportunity, whether you're a day trader or not, I'd love to hear from you. We're limiting this opportunity to the first 50 responders, so email me at my email address below asap.
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,
