1/31/2010 10:37:44 AM
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Bi-Weekly Stock Barometer No. 191
Where are you among these groups?
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 also offer a daily blog and you can follow our blog posts on on Twitter and on Facebook. 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.
Here are some facts from a 2008 study from the Vanguard Center for Retirement Research assessment of their retirement accounts. Where do you fit in these numbers?
Account Balances declined on average 14-16%. 1/3rd saw no change, or a slight increase. And 1/5th saw declines of 30%.
Obviously the more aggressive you are the more you are exposed to market declines. This is all about your ability to tolerate risk and your time frame not to retirement, but to when you have to access the funds in your 401k plan. For example, if you have other funds earmarked towards retirement that you will access first, then even though you may retire in 10 years, you may not need those funds for 15 years and you should invest accordingly.
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Equity Allocations were at 61% at the end of 2008, down from 73% in 2007. 4-points of this change was from investors shifting their allocations away from stocks. The remainder was from the decline in equity prices.
Equity allocation becomes more and more important as you invest. Early in your investment process, a 10,000 account will grow more from deposits than it will from allocation. For example, if you invest 5k into a 10k account, that's 50% growth. The allocation may only account for 8% growth in the same account. However, as that account grows, there's a point where allocation becomes more responsible for growth than contributions. It's at this point, you really need to focus on your allocation.
On average, people contribute 7% to their retirement plans - down from 7.3% in 2007.
I'm a HUGE proponent of maxing out your plan, if you can. Most people contribute 6% to get the company match - which at a minimum is a good start. Some think they can't afford to contribute more, but when they get a raise, they could be adding to that contribution. Even if you raise it by half your raise every year, in 5 years you'll be close to the max without much impact to your family budget.
Vanguard reports that there was mostly NO trading activity in 2008. Then they go on to say that 16% traded and 2% of them abandoned equities and the other 14% engaged in a variety of other portfolio changes.
Mutual funds do not want you trading in your accounts. It is simply not good for their bottom lines as it results in more costs to manage their portfolios. They want you to sit tight, ride the ups and downs, and not take control of your investments. So they will down play trading as much as possible.
However, making one or two changes to your portfolio over the course of the year can result in significant differences in what you end up at retirement because that 1 or 2 percent that you can impact gets compounded for every year you work until you retire or access your funds. That's where market timing comes in.
Of the people who leave their retirement plans, 69% roll them over to an IRA. The remaining 31% take the cash.
It's tempting to take the cash and if you have to, you have to. But in doing so, you create a taxable event so if you don't need the money, roll it over. That's the best plan. Retirement is expensive - and you want to position yourself to enjoy your retirement and not have to work too late in your life. I know it's hard to think that far out.
12% took loans in 2008 against their retirement plans in 2008. 2% took hardship withdrawals.
The issue with loans is if you lose your job, they become immediately due. So be careful here. Loans also impact the growth of your retirement assets. So with time being an important component of growth, this will cost you time and eventually money.
One of the biggest changes we're making here in 2010 is that we are now offering all our research to anyone who subscribes to an annual subscription to any of the services below. That's 10 years of our 150+ indicators, updated every week. Take control of your investments. This will give you an edge over others.
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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 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. Trend and support can override the barometer signals.
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. We use the equity put/call ratio. This is one of the most accurate read of investor's fear and complacency and thus an accurate contrarian view of the market.
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.
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Stocks, Options and Options on futures advisory service (up over 100% in 2008).
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.
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Potential Cycle Reversal Dates
2010 Potential Reversal Dates: 1/19, 1/28, 3/2, 3/23. We publish dates up to 2 months in advance.
We've been looking for a move lower into the end of January and then a rally into March 2nd. I think we're there. Depending on this 'rally' we may get very bearish in March. SO stay tuned.
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. Due to their accuracy in the past, I post the dates here.
2009 Published Reversal Dates: 1/20, 2/11, 3/7, 3/15, 4/8, 4/16, 4/27, 5/7, 6/8, 7/2, 7/17, 9/14, 10/10, 10/24, 11/12, 11/30, 12/9, 12/21, 12/29. 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.
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 are 2009's buy and sell signals for the Stock Barometer.
| • | 11/25/08 | Buy |
| • | 1/30/09 | Sell |
| • | 2/6/09 | Buy |
| • | 3/2/09 | Sell |
| • | 3/10/09 | Buy |
| • | 5/7/09 | Sell |
| • | 6/2/09 | close |
| • | 6/25/09 | Buy |
| • | 7/9/09 | Sell |
| • | 7/13/09 | Buy |
| • | 7/30/09 | Sell |
| • | 8/23/09 | Buy |
| • | 9/1/09 | Sell |
| • | 9/7/09 | Buy |
| • | 9/24/09 | Sell |
| • | 10/6/09 | Buy |
| • | 10/27/09 | Sell |
| • | 11/5/09 | Buy |
| • | 12/21/09 | Sell |
| • | 12/31/09 | Year end |
Money Management & Stops
To trade this system, there are a few things you need to know and address to control your risk:
- This system targets intermediate term moves, of which even in the best years, there are usually only up to 7 profitable intermediate term moves. The rest of the year will be consolidating moves where this system will experience small losses and gains that offset each other.
- This system will usually result in losing trades more than 50% of the time, even in our best years. The key is being positioned properly for longer term moves when they come.
- Therefore it is vitally important that you apply some form of money management to protect your capital.
- Trading a leveraged index fund will result in more risk, since you cannot set stops and you cannot get out intraday.
Accordingly;
- Make sure you set your stops so that you can lose no more than 2% per trade (based on the QQQQ if you're trading leveraged funds and options with our trading service).
Use the following spread/momentum indicators to assist in your trading of 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'.
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Gold Spread Indicator (AMEX:GLD)
Want to trade Gold? Use our signals with the Gold ETF AMEX:GLD. Gold gives us a general gage to the overall health of the US Economy and the markets.
US Dollar Index Spread Indicator (INDEX:DXY)
Want to trade the US Dollar? Use our signals with 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)
Want to trade Bonds? Use our signals with Lehman's 20 year ETF AMEX:TLT. The direction of bonds has 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)
Want to trade OIL? Use our signals with AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction has an impact on the stock market.
Summary & Outlook
We remain in Sell Mode, looking for the markets to move lower into the end of the month. We are there now and should see a strong rally into March. But we need a reversal first.
This Friday was the Wolf Moon and it was the largest we'll see for some time. Beautiful site. But there are also those that believe lunar events can have some impact on our financial markets. Without saying whether I agree or not (because it's a more complicated topic than you might think) I will say that it is an interesting coincidence.
Point is? There are certain points in the year where it is better to be making investment decisions - and we're at one of them. Whether it's an adjustment in your portfolios from bonds to stocks or a position in gold, bonds or the dollar, now is a good time to consider making change.
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 also offer a daily blog and you can follow our blog posts on on Twitter and on Facebook. 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,
