1/4/2009 8:53:09 AM

After 3 nice up days and breaking resistance, is now the time to sell?

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Stock Barometer Analysis

The barometer remains in Buy Mode.

The Stock Barometer is my proprietary market timing system. The direction, slope and level of the Stock Barometer determine our outlook. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction.

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Stock Barometer Cycle Time

Today is day 25 in our up cycle. The efficiency of this move has been low.

The Stock Barometer signals follow 5, 8, 13, 21 and sometimes 34 day Fibonacci cycles 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.

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Potential Cycle Reversal Dates

2009 Potential Reversal Dates: 1/20. We publish these dates up to 2 months in advance.

Oops. We've adjusted our first date for 2009 slightly based on some of our work. I still think this will mark a top and we'll see a more significant move lower afterwards.

My Additional timing work is based on numerous cycles and has resulted in the above potential reversal dates. These are not to be confused with the barometer signals or cycle times. However, due to their past accuracy I post the dates here.

2008 Potential Reversal Dates: 12/31, 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. 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, 12/23, 12/31, 1/11/08. 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: 12/27, 1/25, 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.

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'.

QQQQ Spread Indicator (NASDAQ:QQQQ)

The QQQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us an idea of the next turn in the market.

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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.

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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.

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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.

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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.

Supporting Secondary Indicator

I monitor over a hundred technical indicators, some that are widely followed and some that are proprietary. These indicators break down the market internals, sentiment and money flow and give us unique insight into the market. I feature at least one here each day in support of our current outlook - and to give you an education on what professional traders utilize.

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Summary of Daily Outlook

We remain in Buy Mode, looking for the markets to move higher into the 1/20 date.

Note I've added links to all our articles so if you feel inclined; you can go right to their article headings to see what they're writing about now.

We're also at an extreme in sentiment (on some measures). The indicator I use in our Stock Options Speculator is screaming SELL - so we're more free in that service to place some PUT orders on Monday. We'll have our top 10 list of put orders for readers to peruse - and incorporate into their own trading. We rate the picks by smallest move in the underlying that will result in a doubling of our money - i.e. usually below a 10% move in the stock will cause greater than a 100% move in the option. Here's the SOS indicator (it's becoming quite popular):

On that note, one of the reasons people miss tops and bottoms is that most people think linearly and the markets are sinusoidal. So when the markets are moving lower, most people think linearly that the markets will continue lower. And when the markets are moving higher, most people are inclined to think linearly that the markets will continue higher. Unfortunately for them, the market's movement is sinusoidal, here's what it looks like:

So mentality is to overshoot lower on the downside and overshoot higher on the up side. Keep this in mind when it comes to tops and bottoms in the market.

If you have any questions or comments, email me at Jay@stockbarometer.com.

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Regards,