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Hammer or Hanging Man

1/31/2012 9:17:15 AM

Monday's action shows continued strength.

As a Japanese Candlestick trader, I'm always looking at the patterns formed at the ed of the day. When you havea sideways move in the markets and you get action like Monday's, that tests lower levels and recovers into the end of the day - that pattern can be either. The key is confirmation - which means, if the market can continue higher and hold highs today, then it will suggest a hammer and continued upside action. However, if it can't continue higher, and closes lower, it would suggest a hanging man, which is bearish and suggesting lower prices. So we'll see...

To me, it comes down to the dollar, which is in a downtrend, but at some points, downtrends reverse:


Now this whole time that the dollar has remained weak, oil has consolidated sideways:


A break out in oil here may get reversed if the dollar bounces. But the dollar remains weak.

If stocks continue higher, then the liquidity trade is back on. And we'll consider jumping back on the bull. But it will take a day to confirm. So be patient.

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Here's a look at the global markets:

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.

Economic Calendar

On to the charts:

Daily Stock Barometer

Stock Barometer Analysis

The barometer is in Sell Mode. Price action is yet to confirm. Friday was a key reversal date. If this plays out as I see it, we're heading lower into 2/16. However, if stocks hold higher here, we should see another leg higher. We're at one of those points, where I normally say this is a critical day.

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. These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.

We are in a window of a top on our 1/27 date suggesting if this sell mode plays out fully, we will be moving lower into 2/16.

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.

Timing Indicators

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)

QQQQ Timing Indicator

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)

Gold Timing Indicator

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)

US DollarTiming Indicator

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)

Bond Timing Indicator

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)

Oil Timing Indicator

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

Intermediatte Term Spread 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 are in sell mode, looking for the markets to move lower into 2/16. If this plays out per my 2012 forecast, this will be an initial low, and there will be a secondary low in March...

Depending on how this market closes, we'll have to consider an alternative situation. I'll have more tomorrow.

As we reviewed oil yesterday, here's a view on Gold: The leading indicator below appears to have pinned this move, but it's also calling for an eventual retest of the lows later this year - inline with our call for a market bottom.

Gold versus Leading Indicator

Gold volatility is an interesting data point as when it peaks, it normally works itself off with lower prices (the inverse of any other volaitlity).

GLD Volatility

And when markets advance in a liquidity fashion, indicators tend not to get too oversold before they rally.

NASDAQ Advancing Stocks

If you want to learn more about some of my models, I use my blog to cover them in more detail.

Our blog is back up. If you're looking for more information, please visit our blog - I'll have updates and publish other articles there. http://investmentresearchgroup.com/Blog/



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