Prices are consolidating below last weeks gap lower and ahead of the Fed.
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Each week we take a look at 5 mid term indicators to get a big picture view of the market. The indicators primarily focus on investor sentiment. This week we have a 10-week cycle top and remain in the bearish part of the 20 and 40 week cycles. This is the most bearish of our indicators, but as with any indicator it doesn't guarantee a reversal. No indicator works 100% of the time.
Investor sentiment is supporting the markets move and not near an extreme. But it doesn't have to reach an extreme, it just needs to turn lower to give us a sell signal and reinforce a bearish outlook.
The Dynamic Oscillator focuses on the short term moves. It's at a relatively high level - and suggests that while the market remains strong, it eventually will move to lower levels. That doesn't mean that prices will move efficiently with the indicator, it just means that the indicator is likely to move lower. In fact, during a bullish move, the market is less likely to retrace as the indicators move lower. We monitor efficiency of these indicators as that in and of itself is also a good indicator.
The NDX as we see it, gapped lower last Tuesday and prices have been consolidating below the gap, which is a little uncharacteristic of the current rally. To me this suggests that we'll move lower to test the secondary uptrend in the market.
Of course, if you have any additional questions, please feel free to email me at email@example.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
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.
This week we'll pull back and look at the longer term view of this indicator as well.
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.
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.
Dynamic Trading remains on its current SELL SIGNAL.
We remain positioned against this trend expecting to close the current positions when our indicators move back into an oversold level. When will the market reach an oversold level? At what price level will they be at? These are questions that will get answered as the market moves lower - if the market moves lower. With a Fed meeting coming up, we do have a catalyst for a strong market move.
Reading the market is like solving a puzzle. Each day you get another piece and each trade represents its own puzzle. We look at all the pieces and try to interpret the most likely solution and position to profit from it. Sometimes we'll nail it, and sometimes, well, we won't. But the great thing about the market is that it's continuously setting up new puzzles to be solved and giving us new pieces of data each day to solve those puzzles.
Plus there's always a point where the solution to the puzzle becomes so obvious, it's like you're watching a game show on TV and shouting the answer at the TV. That's where we are with the current uptrend. And once things become obvious to the masses, they usually change. Just something to keep in mind as the market obviously remains in an uptrend and will remain in an uptrend until that uptrend breaks. Sometimes it's just as simple as that.
Best regards and good trading!