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The Money Flow - Are You Listening?

Opening Whisper

Have we seen the market top for 2005? Or are we due for a rally that will see the Dow Industrials top 11,000? We believe that the news this week of General Motor's earnings warning will continue to make financial tsunami waves for the next few quarters. The market has not yet considered the enormity of, or the reason for GM's warning - the economy is running low on financial fuel. The consumer is tapped out, or will be as interest rates rise and those ARM home loans start kicking into a higher gear. Ouch!

And speaking of fuel, at what point will the markets flinch in the face of rising oil prices? How much higher must oil prices climb until the consumer really starts crying the "I gotta start car-poolin' blues". The showdown continues, with oil sneaking up on $60 per barrel. I have worked for both General Motors and Exxon during my career. It's interesting to see the money flow out of GM and into Exxon. But then GM has had something to say about why all of that oil and money flow is necessary. Is the day of the gas guzzler coming to an end? Will GM get the message and get that money flowing back to their corporate coffers with smaller autos? Naaahhhhh! Toyota wins!

Our Trading System - What The Numbers Are Telling Us

An email was sent to subscribers this morning to advise that the market was looking like it might rally a little from this point. Our indicators are still on sell, and have even strengthened the sell signal since last week. The 9x18 Moving Averages have done a bearish cross on our weekly chart of the NDX. The potential rally was muted today by rising oil prices.

All major indices are getting to an oversold level as measured by the Stochastics on a daily basis. NDX is oversold on both the daily and weekly charts. Any bounce here is likely to be limited in both duration and extent. If however, we break through the DOW support at 10,600 in the next few days, then a short-term retracement rally gets pushed out to later in the month.

Our NDX StochRSI has been hanging in oversold territory for the better part of 2 months now. The longer we stay oversold, the more likely we will have some type of rally. If we get another market turn south, I may begin to reduce my exposure in anticipation of a short rally. Hang in there and let's not try to anticipate our indicators!


NDX - Chart Model - Thursday March 17, 2005

What Is The Current Sentiment?

Let's review again a few of our Sentiment Charts to get some indication of where this market is currently positioned.


3 year NDX / INDU Ratio - NASDAQ 100 Leading Lower

The NDX/INDU relative tech ratio. The Nasdaq tech has led us higher over the last three years, but now appears to be rolling over since the first of December 2004.

This is bearish and supports our sell signal.

 

The VIX is up 25% since late February but this meager rise in the fear index tells us that there is still a lot of complacency in the market. The SPX/VIX is stubbornly high.

 

6 Yr Ratio SPX / VIX Volatility - Nosebleed Territory

This chart shows the ratio of SPX to VIX (volatility) for six years. This ratio is very near an all-time high and appears to also be forming a topping pattern.

A move of the 8 week EMA below the 80 level of this ratio will lend credibility to an extende sell cycle in the broader market.

 

Material / Financial Sector Ratio - 3 Yr.

The Materials/Financial sector ratio chart is confirming a materials uptrend. This trend is going parabolic and is signaling inflation is coming or, that the only thing worth owning is safe raw materials.

This trend is good for gold, metals and commodities. Should the stock market tank at some point this year, we may see all commodities gain BIG TIME!

 

$BKX / INDU Ratio - Weekly - 3 years

Here's a sentiment ratio chart - $BKX / $INDU. The relative strength between the Philadelphia Bank Index and Dow Industrials.

The weekly MACD on this chart and the 20 Day EMA have turned quite bearish after a 3 year up-trend.

Will it bounce from here or will the ratio break previous support line?

Bye-bye banks!

Watch this one.

Where Do We Go From Here and How To Listen For the Next Signal?

Listener Summary for the Week

We are close to a tipping point. The daily chart on the INDU does not look good. The bulls had better generate a rally soon or we could see Dow 9000 before we see Dow 11,000. But where are the bulls to find support for their case that the market is undervalued?

The US dollar (Symbol $USD in StockCharts.com) is looking very sad. Again please, tell me, why do foreign central banks want our Treasuries? Is there any hope that the dollar is finding any support in this range? I think not.

The 7 year chart of the US Dollar Index. Where is this all going to end? Why haven't the market reporters been telling us how good it is for the dollar index to go down? Isn't it still good for companies that export goods? Something is broke? And I think it's U.S.!

I am continuing to watch the dollar index. If, or rather, when it drops below 80, we might get some substantial moves in the treasury and stock markets.

And here's the 30-Yr. Bond price chart below (Symbol $USB - 7 years). Not really definitive, but if it does decline in price from here (and interest rates rise) will it be more difficult to pawn our national debt off on the Far-East?

The Market is whispering now, but may be getting ready to shout!

Are you listening?

The Market Listener Indicators

Week Ending Slo. Stoch. StochRSI MACD ROC Signal
Thurs Mar 17 Sell Sell Sell Sell Sell
Mar 11, 2005 Sell Sell Sell Sell Sell
Mar 04, 2005 Sell Sell Sell Sell+ Sell
Feb 25, 2005 Sell Sell Sell Sell Sell
Feb 18, 2005 Sell Sell Sell Sell Sell
Feb 11, 2005 Sell Sell Sell Sell Sell
Feb 04, 2005 Sell Cash Sell Sell Cash
Jan 28, 2005 Sell Sell Sell Sell Sell
Jan 21, 2005 Sell Sell Buy- Sell Sell
Jan 14, 2005 Sell Sell Buy Sell Sell
Jan 07, 2005 Buy Sell Buy Sell Sell
Dec 31, 2004 Buy Buy Buy Sell Cash
Dec 23, 2004 Buy Buy Buy Buy- Buy
Dec 17, 2004 Buy Buy Buy Buy Buy
Dec 10, 2004 Buy Buy Buy Buy Buy
Dec 03, 2004 Buy Buy Buy Buy Buy
Nov 26, 2004 Buy Buy Buy Buy- Buy
Nov 19, 2004 Buy Buy Buy Buy Buy
Nov 12, 2004 Buy Buy Buy Buy Buy
Nov 05, 2004 Buy Buy Buy Buy Buy
Oct 29, 2004 Buy Buy Buy Buy Buy
Oct 22, 2004 Buy Buy Buy Buy- Buy
Oct 15, 2004 Buy Buy Buy Buy- Buy
Oct 08, 2004 Buy Buy Sell+ Buy Buy
Oct 01, 2004 Buy Buy Sell+ Buy Buy
Sep 24, 2004 Buy Buy Sell+ Buy- Buy
Sep 17, 2004 Buy Buy Sell+ Buy Buy
Sep 10, 2004 Buy Buy Sell Buy Buy
Sep 03, 2004 Buy Buy Sell Sell+ Buy
Aug 27, 2004 Buy Buy Sell Sell Buy
Aug 20, 2004 Sell Buy Sell Sell+ Cash
Aug 13, 2004 Sell Sell Sell Sell Sell
Aug 06, 2004 Sell Sell Sell Sell Sell
Jul 30, 2004 Sell Buy Sell Sell+ Cash
Jul 23, 2004 Sell Sell Sell Sell Sell

* Note - Our Newsletter is published on Thursday evenings so we make an attempt to "predict" the signal at the end of Friday. You should not base your trading on this or any prediction, but I can trade 10 minutes prior to the close on Fridays (or other days during the week) when I see that one or more of the signal indicators have changed signals. This is particularly important if I am going to a CASH position in order to preserve capital. The above table shows the results of the WEEKLY - FRIDAY SIGNALS with the exception of the latest week, which only shows the END-OF-DAY THURSDAY SIGNAL POSITIONS. The latest signal position may change in next week's newsletter due to a dramatic move on Friday after the Newsletter is issued.

Listen To What He Says

From Isaiah 52:6-10 (KJV): (Think about it on this Palm Sunday Weekend)

Therefore my people shall know my name: therefore they shall know in that day that I am he that doth speak: behold, it is I. How beautiful upon the mountains are the feet of him that bringeth good tidings, that publisheth peace; that bringeth good tidings of good, that publisheth salvation; that saith unto Zion, Thy God reigneth!

Thy watchmen shall lift up the voice; with the voice together shall they sing: for they shall see eye to eye, when the LORD shall bring again Zion. Break forth into joy, sing together, ye waste places of Jerusalem: for the LORD hath comforted his people, he hath redeemed Jerusalem. The LORD hath made bare his holy arm in the eyes of all the nations; and all the ends of the earth shall see the salvation of our God.

I am still working on the Art of Listening, and hope that you are also!

An Educational Newsletter for Stock Market Trend Timers

P.S. - You may freely distribute this email or report to anyone who might like to have it. If you have any questions, or would like to be added to my subscriber list (which is free for now), you can email me at gmiller27@austin.rr.com.

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