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Historical Perspective

10/14/2014 6:09:06 AM

Good morning Traders,

As a market timer, I look forward to these events which test the markets upper and lower ranges. In just a short period of time, the market is back to March price levels. 7 months of gains, gone...

Ok, so whenever we have events like this, and we haven't had one since 2011, or even the larger sell off in 2008, it's important to take a historical view. So I went into our data base and pulled some historical charts. Below is the DSB from 2008 which shows you how low the market can go in a major sell off (we've only done this twice in the last decade, so I don't expect the same). But the barometer can go as low as 1.5!

Daily Stock Barometer

For perspective, here's the barometer with it's range adjusted to the same range as in 2008. We'd have a long way to go before the bottom...

Daily Stock Barometer Chart 2

Looking at our fear gage, and taking it back to the mid level low in 2011, we still have a ways to go to that longer term low.

Equity Put/Call Ratio

And we're always looking for past indicators to hit a relative level. This is one which came up in my trading class this weekend. It suggests that we're working towards a bottom. The market can't sustain this level for too long before we get a snap back rally. As we approach expiration on Friday, I expect that to play into any reversal.

NASDAQ Yearly New Lows

And finally, I want to leave you with our forecast for 2014. Note, we're already working on our forecast for 2015 and will share it with clients as we close in on year end.

SPY 2014 Forecast Model

Our cycles chart, not shown, had a 20 week cycle low on 10/1. When we discussed the market action this weekend during my class, we basically said this week will set up the next month. If the market continues lower into expiration, then we should be set up for a bounce. If the market reverses today (since it's Tuesday) and bounces into expiration, then that'll bring in the above potential for a larger move lower. We're not there yet, and again if the market sets a low this Friday, the above inverts and suggests a strong rally into year end. So as I like to say, the next week will set up the next month...

At that point, we'll take action in our trading services. So stay tuned...



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