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Cinderella Market Taking the Punches - Are You Listening?

Opening Whisper

"Cinderella Man" was a great movie. I saw it twice. Maybe you can still catch it at the theater or later on DVD. No, I'm not also a movie reviewer. I bring up the boxing theme because of my email to subscribers earlier this week in which I mentioned Dave Landry's "TKO" chart pattern. The "Trend Knock-Out" as he calls it is a brief reversal which knocks out the weak hands (hits their stop levels) and then takes off in the original direction leaving the fighter/trader dazed and confused.

We are seeing what may be a limited TKO punch in the last couple of days in the equities markets. Certainly not a heavy blow, but just enough to cause us to think that maybe a short-term top is in. The potential TKO came in the form of more troubles in London, Greenspan's warnings, and the unknown effects of China revaluing their currency. What impact will these things have in the markets? I don't know,... I never know. All I can know right now is that these factors were not knock-out punches! And like the Cinderella Man, James Braddock, this Cinderella market takes the multiple punches, comes off of the ropes and (hopefully) goes on to win. This week's heavy blows have been shaken off and lead us to believe this market has more fight left in it. We may have a few more pugilistic rounds in this cycle. Since the London bombings of July 7, we have not seen a knock down and the NDX is on its feet and flailing away.

The S&P 500 is still lingering around 4 year highs. Is the top in or will we break out significantly to the upside? What are the markets telling us? The fact that the bonds, currencies and terrorism have not caused greater impact on the equities leads me to conclude that we are going higher over the next few weeks as our MACD is advising. If the market is forming a longer term top, I would expect it to "roll over" in a gradual fashion unless we see more terror fatalities in the West.

Our Trading System - What The Numbers Are Telling Us

Our BUY signal is still in place and is likely valid for another week. The NDX has held some gains this week and our faster indicators have remained in buy mode. The ROC is still weak, but I am going to call it a "buy" signal since it has not given up much momentum this week and is still holding above its rising 16 day moving average signal line. For the next 5 weeks the ROC may drift lower based on our "look back" of the last 8 weeks which goes into the ROC calculation. For this reason we might not want to give too much consideration to the ROC as long as we continue in a flat to rising market environment in the next couple of weeks.

We are still in a quadrant 2 rising market but are one week closer to topping in quadrant 3. We are not there yet. Chaikin Money Flow has just turned positive on the NDX daily charts, a bullish sign. This week we will again watch the CCI closely and when it and StochRSI begin to falter we may reduce our exposure to 50% RYVYX, 50% Cash.

NDX - Expanded 6 Month Chart Model - Friday July 22, 2005

What Is The Current Sentiment?

Stock bell-weather General Electric is not keeping up with the broader market. The same is true for Citigroup. See the following 2 charts. The Bank Index ($BKX) and JPM are not doing much better than Citigroup (charts not shown). The loss of relative strength in these large cap stocks may be telling us something about the longer term - the next couple of years. Broad market strength appears to be coming from somewhere.

7 year Monthly GE / SPX Relative Strength Ratio

7 year Monthly Citigroup / SPX Relative Strength Ratio

Some of the loss in relative strength for GE may be dollar related. Regardless of the reasons, we should consider it a leading indicator of what is over the horizon. We'll just chart 'em - you decide what they portend for the future.

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

Even though we are overbought, prices are looking like they could go sideways to higher. Watch the S&P 500. Failure to breakout significantly above the 1235 level next week could spell at least a short-term top or plateau. Also watch the Chicago PMI number on Friday July 29. A number under 50 could break the will of the bulls.

Our subscribers were informed to hold to the buy signal before the close on Friday. We will remain in buy signal mode until the market tells us that we are wrong. At all costs, Market Listeners must not let the bear land a knock-out punch. We have raised our stop to NDX = 1548 based on our gain for the week. Exit to cash (RYMXX) on any daily close of NDX below 1548.

Market Listener Trend Timing Summary
Current Signal: 100% BUY (Bought RYVYX Rydex Velocity 100)
Subscribers were advised by email to BUY RYVYX before the close on Friday July 8.

Conservative Investors: You may want to decrease your RYVYX holdings and move partially to cash as we see more gains on the NDX.

Fault Tolerant Cash Safety Stop (FTCSS): Raise the Cash STOP to 1548 on NDX. Exit the long RYVYX position and go to the safety of cash on a daily close of the NDX below 1548. Any NDX weakness which breaks below that point could accelerate downward. We will raise stops during the week if the rally continues.

An email will be sent to subscribers if there is a mid-week update.

The Market has a new trend direction. Are you listening and following?

The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX approx. +27.5% as of July 22 Close)

Week Ending  Slo. Stoch. 
 ML Signal1 
July 22, 2005 Buy Buy Buy Buy Buy
July 15, 2005 Buy Buy Sell Buy Buy
July 8, 2005 Sell Sell Buy Buy Buy
June 24, 2005 Sell Sell Sell Buy- Cash
June 17, 2005 Buy Buy Buy Buy Buy
June 10, 2005 Buy Sell Buy Buy Buy
June 03, 2005 Buy Buy Buy Buy Buy
May 27, 2005 Buy Buy Buy Sell++ Buy
May 20, 2005 Buy Buy Buy Sell++ Buy
May 13, 2005 Buy Buy Buy Sell++ Buy
May 06, 2005 Buy Buy Buy Sell+ CASH
Apr 29, 2005 Sell Sell Sell Sell Sell
Apr 22, 2005 Sell Sell Sell Sell Sell
Apr 15, 2005 Sell Sell Sell Sell Sell
Apr 08, 2005 Sell Sell+ Sell Sell Sell
Apr 01, 2005 Sell Sell Sell Sell Sell
Mar 24, 2005 Sell Sell Sell Sell Sell
Mar 18, 2005 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 Sell Buy- Sell
Jan 14, 2005 Sell Sell Sell Buy Sell
Jan 07, 2005 Buy Sell Sell Buy Sell
Dec 31, 2004 Buy Buy Sell Buy 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
1 This Market Listener signal is our base signal. The MACD is our primary weekly input, but can be "out-voted" by the other faster indicators on a daily basis when we need to go to cash to implement our Cash Safety Stop (CSS). You should not base your trading on this or any other single indicator. With Rydex Dynamic funds, we can trade in the morning and 5 minutes prior to the close during the trading day/week when I see that one or more of the fast 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 end-of-week, WEEKLY SYSTEM MODEL SIGNALS.

Listen To What He Says

NASB Mark 6:1 Jesus went out from there and came into His hometown; and His disciples followed Him. When the Sabbath came, He began to teach in the synagogue; and the many listeners were astonished, saying, "Where did this man get these things, and what is this wisdom given to Him, and such miracles as these performed by His hands? "Is not this the carpenter, the son of Mary, and brother of James and Joses and Judas and Simon? Are not His sisters here with us?" And they took offense at Him. Jesus said to them, "A prophet is not without honor except in his hometown and among his own relatives and in his own household." And He could do no miracle there except that He laid His hands on a few sick people and healed them.

I am working on the art of listening and hope that you are also.

Wishing you all the profit you can handle,

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