Bi-Weekly Stock Barometer No. 147

November 19, 2006
11/19/2006 10:52:47 AM

Dear Subscriber,

Here are 2 changes we will be providing in 2007.

First, if you're new to the biweekly stock barometer, welcome. This article comes out every 2 weeks and gives a big picture view of the market. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so too can our interpretation as the market gives its daily clues to the future. Or sign up for our free weekly newsletter, where we provide up to date articles from our various trading services. We're also going to be releasing a free trading video - so sign up today.

Stock Barometer Indicator Charts:

Over the past several years I've been maintaining spreadsheets of various market data in the development of my indicators. I periodically receive requests to provide various charts on a daily basis. Unfortunately, it's just not possible to copy and post these images on a daily basis. However, to make the Stock Barometer more valuable to you, I've hired a firm to incorporate this data into the site and make all these charts available to you on a daily basis. While this change may take a few months to incorporate, I believe it will be well worth it to be able to view all the indicators I view on a daily basis.

Stock Barometer Educational Video Series

While I haven't ventured out on the seminar circuit just yet, about once per semester, I teach a small group of newer traders on the basics of trading. I had one of those classes video taped and will provide it free to subscribers. This is a chance to get to see me speak about the markets and give you a good idea of how I view things. Of course, in order to do this I've hired a firm to convert these videos into a format so they're viewable on the site. I expect to have the first of the videos posted in early 2007.

That's it, other than bringing in a few new trading services and new writers in 2007, so let's get on to the charts.

Message From The Markets

Market action is ruled by sentiment and by monitoring market internals and studying sentiment; you can gain reasonably predict future market movements. The basis of the Stock Barometer system is overlaying extremes in sentiment with sound technical analysis to predict the likelihood of future price movement. Each indicator and chart measures the hope, fear and greed of investors and traders from different angles. Follow along with my charts and over time, you'll also learn to understand how to read the markets, which is essential prior to setting up each and every trade.

STOCK BAROMETER CHART

The Daily Stock Barometer is a proprietary measure of market energy. The direction of the stock barometer determines our short-term outlook on the market's direction. A BUY or SELL signal is triggered when the indicator clearly changes direction. If the line is moving up, we are in BUY MODE and if it's moving down, we are in SELL MODE. The black line is a 5-day moving average that we use to confirm changes in direction.

EQUITY PUT CALL RATIO CHART

The CBOE put/call ratio is comprised of two sets of data; equity options and index options. The index component contains items that are used as a hedge, thereby distorting the correlation and interpretation of the indicator. I use the equity put/call ratio. This is one of the most accurate read of investor's fear and complacency.

TRIN/ARMS CHART

Richard Arms developed the arms index. It is also referred to the Trading Index or TRIN for short. It is a measure of the ratio of up stocks and down stocks divided by the ratio of up volume and down volume. Our Spread Chart converts the arms index data into momentum Buy and Sell Signals.

TICK CHART

The tick index is represents the sum of all stocks ticking higher minus all stocks ticking lower (a stock is said to be trading on an up tick when it trades at a higher price than the last sale). It's utilized as a day trading tool as it gives you an up to the second read of the intensity of buying and selling.

BREADTH (ADVANCE - DECLINE) CHART

Each day several thousand stocks either advance, decline or remain unchanged. The number of advances and declines normally ranges from +2500 to -2500. A high number of advancing stocks normally marks a top just as a high number of declining stocks normally marks a bottom. Monitoring the 5 and 13-day moving averages of this allows us to better predict future prices.

VXO CHART

The VIX is a measure of volatility on options pricing. We use the old VIX, which is now called the VXO. The higher the volatility, the more likely the market is close to a bottom, as traders are willing to pay more premium for puts, which act as Insurance on their long positions.

Cycle Time

N/A - we remain in cash awaiting the next signal.

The Stock Barometer signals tend to follow a 5, 8 and 13 and sometimes 21 day Fibonacci cycle 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, 11/28. We publish these dates 2 months out.

We weighted the potential for a retracement into 11/28 heavily and the market has proved us wrong. We moved to cash to avoid any further damage from being on the wring side of the market. Moving to cash is a very good way to clear your head and think more clearly on the next trade.

My timing work is based on numerous cycles and has resulted in the above potential reversal dates. They're predictive and have nothing to do with the barometer cycle times. However, due to their accuracy in the past, I post the dates here.

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.

Stock Barometer Buy And Sell Signals

QQQQ or SPY Chart: A chart is provided in every bi-weekly report and shows the barometer Buy and Sell Signals (which are provided in my morning updates) as well as showing the next highlighted 'reversal' window. The numbers adjacent to the buy and sell signals are the number of days between signal (cycle time).

Here's one years of our end-of-day buy and sell signals for the Stock Barometer over the past year. They're marked on the QQQQ chart with red and blue lines (or red and blue arrows).

The following work is based on my price based spread/momentum indicators for the USD$, XAU, GLD and TLT. They are tuned to deliver signals in line with the Stock Barometer. Combined with up/down indicators and you have a powerful tool for pinpointing market reversals.

Gold (GLD:AMEX & INDEX:XAU.X)

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 (Amex:TLT)

I include bonds in our studies and use Lehman's 20 year ETF, as the direction of bonds can have an inverse impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.

Summary & Outlook

We remain in CASH, awaiting the next signal.

Based on the various indicators, we're seeing an exuberant market - people expect prices to go higher and they're getting just that.

Obviously there are always 3 possible scenarios in the market. 1) the market moves higher, 2) the market moves lower or 3) the market moves sideways. Since we're approaching a key reversal date of 11/28 and I stubbornly believed that 10/13 (our previous key reversal date) would mark a top and the market would retrace into 11/28 (like in the Matrix when Morpheus stubbornly believed that Neo was the 'one' - although he was right), we could still see a sharp retracement into 11/28 - although that seems unlikely as the market likes to consolidate after sharp moves.

In the very short term, the Advancing stocks have moved to a daily level that normally supports a short term advance. So even with all the overbought indicators, to have one that's positioned for another advance as the market has moved sideways over the past 3 days suggests we could see a bit more upside.

We'll simply have to wait and position for what our indicators are saying and when they issue a signal, move in that direction.

Again, if you're new to the biweekly stock barometer, welcome. This article comes out every 2 weeks and gives a big picture view of the market and our recent activities. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so to can our interpretation as the market gives its daily clues to the future. Or sign up for our free weekly newsletter, where we provide up to date articles from our various trading services. We're also going to be releasing a free trading video - so sign up today.

As always, if you have any questions or comments, feel free to email me here at jay@stockbarometer.com.

Regards,