We remain in Buy Mode, but...
Welcome to the Daily Stock Barometer. The stock barometer is a series of algorithms that represent the characteristics of trends and combined in such a way to position for each and every move but tuned to deliver it's best profits in intermediate term market moves - what I like to call the bread and butter of the market - where you get the most profit from the least work. This technique isn't going for a high accuracy percentage, it's going for the magnitude return, ignoring the frequency trades.
Each day we publish the Stock Barometer chart below, and discuss the positioning of several other indicators. My work is primarily focused on timing without projecting price levels. This is something that's essential in obtaining the maximum profits from intermediate moves. By being patient to wait for intermediate term moves, we don't need to be so active on the daily action. However, that at times will produce a drawdown - as with any system. Using Rydex, for example, we've returned close to 100% in a year, but in order to capture that much profit, you will take on a little risk - and we can see a drawdown of 30% - which is roughly a 3:1 risk to reward ratio - inline with longer term historical performance.
Stock Barometer Analysis
The barometer remains in Buy Mode, as the daily line has crossed below the 5-day line and the uptrend in the signal and market is in jeopardy with Friday's bearish engulfing.
The Stock Barometer is my proprietary market timing system. The direction or slope of the Stock Barometer helps determine our outlook on the market's direction. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction. The black line is a 5 day moving average of the barometer and may be used to confirm changes in direction. All the information contained in this email is considered in making our calls.
Stock Barometer Cycle Time
Monday will be day 4 in our Up Cycle.
The Stock Barometer signals follow 5, 8, 13, 21 and sometimes 34 day Fibonacci cycles that balance with 'normal' market cycles. Knowing where you are in the current market cycle is important in deciding how long you expect to maintain a position.
Potential Cycle Reversal Dates
2006 potential reversal dates: 1/16, 1/30, 2/25, 3/19, 4/8, 5/8, 5/19, 6/6(20), 7/24, 8/20, 8/29, 9/15, 10/11. We publish these dates 2 months out.
The next two weeks is going to set up the larger year end move. With our indicator beginning to turn lower, we can see the potential for a move lower into 10/11 - which would be ideal for the bullish move into the end of the year.
But for now, we remain in Buy Mode, so we have to say that we're looking for the market to move higher in to 10/11 and initiate a larger move lower following that date.
My 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 cycle times. However, due to their accuracy I post the dates here. These dates are used to influence how quickly we issue a buy or sell signal.
2005 Potential reversal dates based on 'other' cycle work were 12/27, 1/25, 2/16, 3/4, 3/14, 3/29, 4/5, 4/19, 5/2, 6/3, 6/10, 7/13, 7/28, 8/12, 8/30-31, 9/22, 10/4, 11/15, 11/20, 12/16.
The following work is based on my spread/momentum indicators for the QQQQ, SPY, XAU, GLD 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. I provide the spread indicator charts at least weekly and when they deliver reversal signals. 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'.
QQQQ & SPY Spread Indicator
The QQQQ and SPY Spread Indicators remain in Buy Mode, above zero.
The QQQQ and SPY Spread Indicators will yield their own buy and sell signals and may be in Buy and Sell Mode that is different from the Stock Barometer.
Gold & Silver Sector Index Spread Indicator (Index:XAU.X)
The XAU and Gold Spread Indicators remain in Buy mode, above zero.
The dollar Spread Indicator remains in Buy Mode, above zero.
While we're short term bullish on Gold, it all depends on the dollar and the market as to whether gold is consolidating before the second leg of a much larger move lower or not.
I monitor Gold in the form of GLD and the XAU as well as the US Dollar Index as a general guide to the overall health of the US Economy and the markets, as well as to assist us in the entry of positions in our Gold Stock Service.
Bonds Spread Indicator (AMEX:TLT)
The Bond Spread Indicator moved into Sell Mode, above zero. We remain long bonds in our ETF service - but looking to get out soon given the angle of the previous advance.
I include bonds in our studies and use Lehman's 20 year ETF, as the direction of bonds can have an impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.
Supporting Secondary Chart
I have over 100 technical indicators, some that are widely followed and some that are proprietary. These indicators break down the market internals, sentiment and money flow and give us unique insight into the market. I feature at least one here each day in support of our current outlook.
Summary of Daily Outlook
We remain in Buy Mode and looking at the initial move in October setting up a large move into the end of November.
Calling tops is different from calling bottoms because of their underlying emotional make up. Tops are built on hope and bottoms are built on fear and both have a component of greed. It's the relative measures of each that we focus on in making our calls on the market. But in making calls on the market, it's important not to get caught up in the emotions yourself. Keeping an insulated view of the market activity is very difficult. You can turn off CNBC and Bloomberg, you can avoid the papers, but you can't avoid everything - but you must try to keep an independent, unbiased view on the market.
So the market (SPY) has pushed to a new high here, as it did back in the end of July 2005, and again in the end of November 2005. Back in April this year, I had suggested that we had seen a high for the year (of course my calls are based on the QQQQ - because that's all we trade). But the potential for the QQQQs to retest their highs exists here as well. Whatever happens over the next two weeks, will determine if/when and how that retest will occur. So stay tuned.
As always, if you have any questions or comments, feel free to email me at Jay@stockbarometer.com.
Regards,
