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Cycles And Sentiment

10/8/2014 6:17:38 AM

Good morning Traders,

As the market goes deeper into corrective mode, we'll take a look at our weekly indicators and our cycle timer.

Since it's Wednesday, we get our first updates on weekly sentiment. The bulls/bears data is made up of two parts (obviously). But the divergence in bulls and bears is concerning. The bulls are the fewest in some time.

Investors Intelligence % Bears Chart

This leaves the market vulnerable. The bulls are right where they were last time we looked. At the middle of their range. But the following indicator is reaching an extreme:

Investors Intelligence % of Advisors Calling for a Correction

Now this isn't the most precise indicator, but when it reaches an extreme, it's worth considering. This extreme is actually bullish for the market.

Another indicator on the bullish side:

Investors Intelligence Weekly Buy and Sell Signals

For the past few years, this level has suggested the market is close to a bottom. This is more of a technical indicator than a sentiment indicator because it's based on price action, so I rank this higher than the above.

And finally, our 10/20/40 week cycle chart:

2014 10/20/40 Week Cycles and Seasonality

We have been looking for this 10/1 correction all year, but it's coming a little late (which is bearish).

So where does that leave us?

At the end of the day (I always say that) the market is vulnerable here, since fear is not growing as prices move lower and we're still in the window of the crash I predicted a few weeks ago. That being said, we're approaching a level on some measures where we would begin to expect the markets to rebound. So we'll watch the markets even closer now for action in our services. I.e. in our QQQtrader, we're short the Qs. In our options service, we're still short oil and gold. And we issued our covered call recommendations near the top, so they should all pan out as we move into this expiration.

And expiration will be key - as I believe markets reverse into expiration, so that'd be my target date for the bottom to be set. If fear builds to the right levels, the market could rally strongly out of expirations.

On an administrative note, we're going to consolidate all our Barometer services as we make room for our next trader, who'll not only incorporate his techniques on stocks, but on forex and futures as well. His name is Ian Mitchell and we're excited to have him joining our team later this month. Again, we're broadening our scope of services to help you profit from the coming markets over the next decade as we are moving into a period where we expect substandard market returns. That means the Buy and Hold strategies that worked since the March 2009 bottom will need to be replaced by strategic portfolio management. So stay tuned!



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