1/3/2012 8:42:19 AM
At Least For Today...
Good morning traders. I hope you had a nice New Year celebration. I did as well and will be getting my 2012 forecast out later today.
Markets are gapping up this morning as they catch up to two days of overseas action. As I've been looking for, the markets should bounce into January 12th. And I'll cover the rest in my 2012 forecast.
That Darn Calendar... The market tends to trade better on emotional events. That's why I'm not a huge fan of options expiration and I'm also not a huge fan of year ends. Because they're calendar events, not emotional events. This makes the 'read' more difficult on my part as people make their financial decisions for tax purposes, not for one of the behavioral measures that I follow.
That being said, I'm always looking for extremes that will resolve themselves and fitting them into the larger forecast in a reversion to the mean methodology. I'll cover a few of those here today.
In addition, if you're new to reading me, you'll see that I look at the same charts day after day. To me, I liken it to golf, and the process you go through before you hit the ball. You line it up from behind the ball, you visualize its path, you line up your body and club face, balance your body, take a practice swing, visualize it's flight path again, line up and swing away. You do that 70-80 times over the course of a round. Point is, trading should be the same way, you should follow the same thought process as you approach every trade. And that's what we do here.
Now I also tend to chat about resolutions as we roll over the new year. On my end, I've spent some time over the end of the year developing more models to understand oil and bonds better. And later this month, I'll be doing the same thing for Gold. So stay tuned...
I'm also going to be developing more reports and publishing them to our free mailing list - if you're not a member, feel free to sign up by clicking here.
Here's a look at the global markets:
On the economic front, here is the schedule for this week. Pay close attention to the timing of the report and the potential for the markets to make short term reversals at those points.
On to the charts:
Stock Barometer Analysis
The barometer has ticked lower, but we remain in Buy "Support" Mode - meaning price action is bullish enough to keep us long here.
I still see a continuation of the move higher into early to mid January. The effiiency of that move will determine when the top will be set.
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.
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.
• 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).
Potential Cycle Reversal Dates
2012 Potential Reversal Dates: 1/12, 1/27, 2/16. We publish dates up to 2 months in advance.
I am bullish into 1/12 due to seasonal factors and the January Effect. I'm still leaning that way unless we get a sell signal. So stay tuned.
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.
2011 Potential Reversal Dates: 1/15, 1/29, 2/16, 3/10, 3/18, 4/6, 5/21, 5/31, 6/13, 6/24, 7/16, 8/1, 8/19, 9/4, 9/25, 10/21, 10/25, 11/25, 12/26.2010 Potential Reversal Dates: 1/19, 1/28, 3/2, 3/23, 4/7, 5/30, 6/10, 6/28, 7/10, 8/13, 9/7, 10/2, 10/27, 11/21, 12/19. 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.
Use the following Timing/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'.
QQQQ Timing 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.
Gold Timing 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 Timing 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.
Bonds Timing 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 Timing 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.
Secondary Stock Market Timing Indicator
We daily monitor hundreds of popular and proprietary technical indicators that break down market internals, sentiment and money flow to give us unique insight into the market. We feature at least one here each day in support of our current outlook.
As an annual subscriber to any of our premium services, you also get access to all our charts and research. Email Carl@stockbarometer.com to upgrade and also save 20% on your subscription.
Daily Stock Market Outlook
We remain in Buy Mode, looking for the markets to move higher into and through year end into January 12th.
The above chart shows nasdaq cumulative breadth - very ugly and indicative of the year we had... However, as oversold as it is, we'll see how the poitive market action will impact this going forward. I suspect we'll see a bounce to a resistance level, where it'd be smart to get short.
Some more things to chew on:
The above chart measures market efficiency on a 3 and 5 day basis. On a 3 day basis, we should see a bounce here. When the 5 day peaks higher and 3 day reverses lower, we'll start getting bearish.
And I'll leave you with this chart of qqq/spy rsi, which is one reason why I'm bullish going into the new year. But as soon as it resolves (comes back into balance) then I would start thinking bearish.
If you want to learn more about some of these indicators, I use my blog to cover them in more detail.
If you're looking for more information, please visit our blog - I'll have updates and publish other articles there. http://investmentresearchgroup.com/Blog/