We have a sell signal - here's how the market is setting up.

WEEKLY WRAP-UP

Dear Speculators,

We have a Sell Signal - here's what to look for.

Friday's action confirmed the bearish signal from our indicator - which peaked 9/25 on DT Oscillator III. The extent of this signal will play out over the next couple of days.

This article combines our Weekly outlook with our Daily Outlook. We'll cover some of our longer term forecasting first and then get into the short term signal below. Of course, trade alerts will be issued this am in our QQQQ, Rydex and Options Service.

Of course, if you have any additional questions, please feel free to email me at jay@stockbarometer.com.

Dynamic Trading Signals are based on a series of Oscillators tuned to the short and intermediate term movement of the market. Our goal is to be in the market at all times and switch from bearish to bullish positions in line with the markets movements (except for the Options service, which is subject to greater volatility and time decay). Periodically we will go to cash and await the next system trade.

DYNAMIC TRADING OSCILLATOR

Discussion: This indicator peaked back on 9/25 as the market was pushing higher in a liquidity type advance. We've got a bounce in the daily action and combined with the action in the stock chart, we see a top being formed and the market ready to move to a low. The daily action will establish our short term outlook going forward - i.e. whatever our readings are after today's close will determine the extent of our bearish outlook.

10/20/40 WEEK CYCLE

The following chart shows our 10/20/40 week cycles. The 40 week is also referred to as the 9-month cycle. Cycles are not short term tools for determining precise entry and exit points, they're primarily used for intermediate or longer term positioning and forecasting.

INVESTOR'S INTELLIGENCE BULL BEAR SPREAD

Each week, Investor's Intelligence polls a number of newsletter writers. The poll results in a number of bullish advisors and a number of bearish advisors. The difference between those two numbers produces the following chart. It's believed, that when a majority of newsletter writers (like us) are bullish, that the market is near a top, and vice versa. The direction of this line is as critical as the level.

EQUITY INDEX OPTION VOLUME RATIO

The market is all about risk, and there are two primary classes of participants in the market, the individual investors and the institutions. Individuals primarily trade equity options and institutions primarily trade index options. So the relationship between the two gives us an idea of how much risk the individual is willing to take on. At tops, the individual tends to take on too much risk, making this indicator rise. At bottoms, the individual is usually washed out of the market, making this indicator fall.

QQQQ v. SPY RELATIVE STRENGTH

Risk tells us a lot about the market. This indicator looks at risk from another perspective. When market participants overall increase their willingness to take on risk, it's bullish for the market. That risk shift is shown on the above chart as a shift in relative strength from the Nasdaq to the NYSE. Note when we refer to Nasdaq, we're primarily looking at the QQQQ - since that's the focus of our service. And when we say NYSE, we look at the SPY.

MONEY FLOW

This indicator looks at the flow of money in and out of various investment vehicles. For the most part, when money flow reaches an extreme, in either buying or selling, the market is at a top or a bottom, respectively.

NDX CHART

In summary:

Dynamic Trading is giving a SELL SIGNAL.

Whether or not the current advance in the market was merely mutual funds using their cash into the end of the quarter should get answered today as we enter a new month and expect prices to move lower.

This article discusses both short term and intermediate term outlooks of various indicators. Our short term expectation is for lower prices. The intermediate term shows several indicators getting extended and able to support lower prices. I expect lower prices into mid month or at least for the next two weeks. If we get that action, then we could be looking for a larger advance into Thanksgiving.

Best regards and good trading!