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Approaching 11/28: Overbought, but is it done?

WEEKLY WRAP-UP

Dear Speculators,

Coming out of options expiration week, our indicators are overbought but the market is not at its 100% projection yet. Here's what we see.

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


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 remains on its current CASH SIGNAL - awaiting its next signal.

In this bigger picture view of the market, it's easy to see the impacts of the market on sentiment, as the bull bear ratio is approaching an extreme, which normally results in a top. In our longer term cycle work, we see 11/28 as the last reversal date of the year - so we're in a position where the next 6 trading days should set up the remainder of the year. I.e. if we move up into 11/28, which is highly likely, we're looking at a bearish December. However, if we get a nice retracement over the next week here (which is more likely with our indicators being over bought but on the other hand, somewhat unlikely since volume will be real low and low volume markets are easily manipulated) then we'll get a continuation of this advance into the end of the year.

Best regards and good trading!

 

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