9/14/2014 12:26:25 PM
Welcome to this weekend's Daily Stock Barometer. To learn more about our service, visit www.stockbarometer.com and subscribe to also gain access to our research.
The sideways market rules and a little weakness sets in at the end of the week as the market closes at the lows of the consolidation (and even weaker in the futures market).
The barometer is all about how traders position being a driver to market action, not the news. So while news may influence traders, if they position too bearish, it can drive prices higher and vice versa. And with computers representing so much of trading, we look at data to figure out which algorithms are driving the market. The charts we provide show the trading data we've monitored over the past 14 years and when that data reaches an extreme, it represents a trading opportunity - i.e. the timing that's so important to timing your trades in the market. I'm not a big fan of trading every day, I want to trade when I have an advantage. For example, in the below chart you can see we're at a level where returns should be muted to negative - up to -10% for the QQQs.
As you can see the previous buy signal resulted in about a 7% move higher in the markets. If you just watched this one indicator over time, it could help you be on the right side of the market more often than not...
Another thing to note, these indicators tell us a lot about the health and underlying strength and weakness in the market. And these indicators work - as evidenced in our recent oil trade up over 400% and our more recent gold trade up over 100%. So as we go through our charts today, we'll include several additional ones at the end of this article to help you get a view on the market.
As for the Nasdaq Barometer:
Stock Barometer Analysis
We remain in Sell Mode as the barometer is moving lower, but the price action remains static. In the short term, this can be bullish. Remember, the barometer is an aggregate measure of a dozen trading indicators, so we break down those pieces as you never know which will drive the market. But at the end of the day, in a really weak market, they will all eventually influence, or be influenced by the market conditions.
The Stock Barometer is our 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. We'll target the next key reversal date for timing. 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 QQQ if you're trading leveraged funds and options with our trading service).
Potential Cycle Key Reversal Dates
2014 Potential Key Reversal Dates: 1/15, 1/21, 2/5, 2/16, 3/20, 4/10, 4/26, 5/6, 6/18, 6/23, 7/16, 9/6, 9/22... These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.
9/22 is our next focus date.
2013 Potential Key Reversal Dates: 1/16/13, 1/29, 2/14, 3/6, 3/15, 3/28, 4/5, 4/25, 5/13, 5/30, 7/19, 8/20, 8/29, 10/4, 11/3, 12/30. These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.
2012 Potential Reversal Dates: 1/12, 1/27, 2/16, 2/23, 3/16, 4/9, 4/25, 5/26. 6/2, 6/15, 7/2, 7/25, 8/13, 8/30, 9/8, 9/25, 10/7, 10/30, 11/15, 12/17, 1/15/13.
Our IRG Market Timing and Sentiment data service shows the performance of these forecast turn dates going back to 2003 and for the remainder of 2012. Our 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.
Use the following timing/momentum indicators to assist in your trading of the QQQ, 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'.
QQQ Timing Indicator (NASDAQ:QQQ)
The QQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us a big picture idea of the next turn in the market relative to the barometer signal.
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.
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. The dollar direction can have an impact on the market and multinational companies - as the dollar goes up, it lowers the earnings for multinationals and can weaken the stock market and more so the Nasdaq.
Gold Timing Indicator (ARCX: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. Want to trade gold options - try our Gold Options Trader service at www.stockbarometer.com - trials are only $1.
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. Want to trade OIL (USO) options - try our OIL Options Trader service at www.stockbarometer.com - trials are only $1.
Secondary Stock Market Timing Indicator
So as we say - how traders position in the market influences the market more than the news or your perception of the news - because it's so easy to focus in on one news event as the media does - but it's the sum total accumulated market response to all events - including price action. So computers (even if they're programmed by humans) will position regardless of news. It's tough to grasp the randomness of markets and how our response to randomness causes action and the massive amount of influences that there are on the market. The key is to realize that these computers can at some point all start leaning the same way (as they have to the upside) and when they turn to the downside, we'll see it in our longer term indicators. We're not there yet. But we've been doing this for 14 years and realize that the past does repeat itself and look to show that mathematically - not just spout off some belief or opinion, if we can't show it in an indicator, then we try not to say it...
We maintain hundreds of popular and proprietary technical indicators that break down market internals, sentiment and money flow to give YOU unique insight into WHEN you should BUY or SELL the market. We feature at least one here in support of our current outlook.
Daily Stock Market Outlook
We remain in Sell Mode, expecting the market to consolidate then initiate a larger move lower.
In the short term, energy is building as it does when the market internals move lower. But when price action doesn't break down, then it's potentially bullish - I say potentially because a sell off can initiate at any point in the barometer curve.
So let's run through some charts to get a view on the bigger picture. I see the market approaching a potentially dangerous period, which could initiate very soon. But absent that initiation, markets can make another push higher.
#1 - our EIOVR indicator is turning into a sell signal. I won't get into too much of the logic in this indicator other than to say spikes represent when the individual is moving into the market. Individuals tend to buy in at tops.
#2 - the signal from gold is bearish for bonds.
#3, Nasdaq Cumulative Breadth is bearish - when a market advances on fewer stocks participating, it's dangerous...
#4 - the Nasdaq new highs are bearish - though a bounce at the zero level would be bullish. This point in time, when an indicator is in the middle of a range, but at a critical level (zero) means from a computer programming point of view, a break lower is dangerous.
#5 - nasdaq volume ratios are moving lower.
#6 - while the below is technically bullish, the pattern is a little concerning. This indicator will break one way or the other, and that break will help us time the next move.
There's a lot going on in the markets. You have gold breaking lows, oil remaining weak and bonds starting to break down - meaning rates are going up and stocks remaining weak. So to me, the support for the stock market in the form of liquidity is dried up. And when liquidity dries up, markets head lower.
If you want to see some of our indicators in Social Media, please visit and "LIKE" our FaceBook page. I'll have periodic updates on there and we WANT your feedback. This will be a good way to share your views with other traders. http://www.facebook.com/InvestmentResearchGroupInc
If you want to learn more about some of my models and indicators, we use my blog to cover them in more detail. If you're looking for more information, please visit our blog - We'll have updates and publish other articles there. http://investmentresearchgroup.com/Blog/