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Autumn Sell Signal - Are You Listening?

Opening Whisper

There was a short-term sell signal "blowin' in the wind" on Monday as equities sold down. The Bull/Bear ratio of optimism had reached extreme levels. With the VIX and Put/Call ratios rising, our adaptive MACD chart projected a sell signal which was delivered to subscribers before the close on Monday (from our Cash signal last Thursday). Oil prices may have been the trigger for the break in price acceleration, but the overbought condition was a natural setup for some selling. The risk is on the downside with limited upside risk.

Market Listener Proprietary Adaptive MACD

Our proprietary adaptive MACD (chart above) is dynamically based on a Call/Put (not Put/Call) ratio average. The sell signal came after a higher peak than seen in early June. Keeping the signal will require a close stop/exit point until it gets more dramatic confirmation.

This week's selling was not aggressive, but looks like it could be just the start of an Autumn sell-off which might carry us into September and October based on the recent natural cycle lengths. The Nasdaq New Highs - New Lows ($NAHL) chart appears to be ready to confirm the sell signal with the stochastic and the MACD on the following chart.

3 Year Weekly - Nasdaq New Highs - New Lows

3 Year Weekly - DJ US Home Constr. Index / 10 Year Treas. Yield Ratio

The chart above gives us an interesting look at the "dance" between the Dow Jones Home Construction Index and its strength relative to the 10 Year treasury yield. Has this ratio peaked for the fourth and final time for the foreseeable future? Home Builders buyers Beware!

Our Trading System - What The Numbers Are Telling Us

Our chart model buy signals on the NDX have not yet cratered but are slowly giving up their buying strength. The faster MACD histogram has deflated by one notch and the CCI has dipped below the 100 level. On Monday we chose to let our adaptive MACD take us to a sell signal despite the buy strength still observed in our weekly chart model.

We appear to be solidly in Quadrant 3 of this cycle where our weekly MACD histogram will be at a maximum and start to lose momentum over the next few weeks. If we are about to enter Quadrant 4 of this MACD cycle, then the selling should accelerate into and beyond the end of the month.

NDX - Expanded 6 Month Chart Model - Friday August 12, 2005

What About Bonds? The ten-year note yield gave up its recent momentum this week as market participants appear headed for the safety of treasuries, buying notes up and sending yields down 15 basis points to 4.24% ($TNX). Perhaps the fear of an equity sell-off is producing an asset allocation shift selling stocks in favor of bonds.

What About Gold? - Gold mining stocks ($HUI) continued their upside surge with Newmont Mining rocketing a healthy 5.8% on the week. The buy signal is still in effect but keep your stop/exit points nearby as the mining stocks might be sucked into a stock selling binge should that take place next week.

The following chart shows the relative valuation of Newmont Mining (NEM) to Gold ($Gold). The ratio is less than the 180 day moving average and therefore Newmont appears to be undervalued (short-term) when compared to gold pricing but it could approach that level with a little more push to the upside. It's got some room to run up from here.

1 Year Daily - Newmont Mining / Gold Relative Valuation

What Is The Current Market Sentiment?

This week the VIX and CBOE Total Put/Call ratio continued rising confirming that "something is up". This increasing fear can abate quickly (as was seen on Wednesday in the VIX), but a gradual rise in the $VIX and $CPC next week could confirm that we have more downside in equity prices. NOTE: The CBOE Total P/C ratio peaked on Friday closing at 1.28. This extreme is in the range (1.3-1.4) where rallies have been generated in the past 3 years. We will watch the $CPC carefully for signs that it has given its signal that the market is due to rally.

I have also included a chart of the Nasdaq Composite / S&P 500 relative strength ratio. This chart is telling us clearly that the Composite has lost its momentum near a significant peak. This could be just another warning sign that tech is on the decline and leading the selling.

6 Month - Weekly Nasdaq Comp. / SPX Ratio

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

The SPX is still very much range bound (1225-1245) and may be setting up for another push higher. We would have to abandon our sell signal if SPX broke above the 1245 level or if NDX rallied above 1625 on a daily close. The $VIX and $CPC seem to be confirming that the short-term trend is down. We will also be watching the $BPSPX and $NASI charts for downside breaks to confirm the sell signal. We should find out early next week if our sell signal was premature.

Market Listener Trend Timing Signal Summary

Current Signal: 100% SELL (Bought RYVNX Rydex Venture 100 Fund)

Subscribers were advised by email of the SELL signal before the close on Monday Aug. 8.

Fault Tolerant Cash Safety Stop - Admit failure and exit to cash (RYMXX) on a daily close of NDX above 1625.

We will issue an email to subscribers next week if we get an exit signal or have a mid-week update necessary to change the stop/exit level.

The Market is whispering. Are you listening?

The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX approx. + 28.5 % as of Aug. 12 Close)
Week Ending Slo. Stoch.
ML Signal 1
Aug 12, 2005 Buy- Buy Neutral Sell Sell
Apr 08, 2005
Buy- Buy Buy Buy Sell
Aug 04, 2005 Buy Buy Buy Buy Cash
July 29, 2005 Buy Buy Buy Buy Buy
July 22, 2005 Buy Buy Buy Buy Buy
July 15, 2005 Buy Buy Sell Buy Buy
July 08, 2005 Sell Buy Buy Buy Buy
July 01, 2005 Sell Sell Sell Buy- Cash
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
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 Fault Tolerant Cash Safety Stop (FTCSS). 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 1 John 4:11 "And the testimony is this, that God has given us eternal life, and this life is in His Son. He who has the Son has the life; he who does not have the Son of God does not have the life. These things I have written to you who believe in the name of the Son of God, so that you may know that you have eternal life.

This is the confidence which we have before Him, that, if we ask anything according to His will, He hears us. And if we know that He hears us in whatever we ask, we know that we have the requests which we have asked from Him."

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

Best Profits,

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