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Stock Barometer

Stock Barometer

Stock Barometer

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Born On Dates

Bi-Weekly Stock Barometer No. 148
12/3/2006 10:14:52 AM

Dear Subscriber,

Just like Budweiser and other beers, traders have born on dates - and you better know yours.

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.

I could spend chapters and chapters writing about the differences between traders. Even if you gave 2 traders the exact same courses at the exact same time and asked them to read the same books and exposed them to the same financial media, you'd still get two different traders with two distinct trading styles.

Trading is an individual thing. Even when exposed to the exact same inputs over time, each trader will assimilate only that information that they relate to. Each trader is exposed to and tries to understand a huge amount of information. But only so much information gets in. The remainder of the information is simply discarded - or stored in some deep recess of the brain until some new input generates some recognition of relevance and that information may be revisited.

So what you end up with is an almost purely random path from the start of your trading experience to where you are now. Even when the input is controlled - you'll never be the same as the trader sitting next to you.

That doesn't mean a group of traders can't be exposed to the same trading system, and taught how best to execute it aka the turtles and their commodity trending system - but for the most part, no two traders will be alike.

There are so many variables that cause differences between two traders - a big one is what I like to call the born-on date. Born-on date is just as it's used with the beer companies, it's what the market conditions were when you first got exposed or involved in trading. So if you started your trading experience in a bear market, you're a bear and is you started your trading experience in a bull market, then you're a bull. You'll never loose this underlying bias. It's engrained in your brain.

Ok, sounds like a simple concept, but the brain is such a complex organ that we know so little about that the paths it takes to make a decision and those paths will just never be mapped out.

How do we use this to your advantage? First and foremost, consider your born-on date. Did you take up trading in the stagnant 80's, the rip roaring 90's or the bearish early 2000's. Your born on date will determine your underlying bias to your trading. You ever notice that you trade better in bear markets or bull markets?

Second, when you're communicating with other traders, note their born on date. Not like you can turn them over and read it on the bottom of their shoes. So you'll have to do a little digging.

Why is this helpful? Well, we're always getting input from various sources. Now, knowing the born on date from the source of the information allows you to remove their bias - and get a clearer read on the market or information being presented.

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

Monday is day 6 in our Down Cycle.

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. 11/28 is our last reversal date of the year. We publish these dates 2 months out.

We've acted on our sell signal ahead of the 11/28 date as it appears that the market is forming a top.

The market moved sharply lower last Monday and formed a low the next day on 11/28. Note there are no reversal dates for the remainder of the year. So whatever happens here should continue indefinitely.

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).

 

1/10

PROJECTED BOTTOM (27 Days)

 

11/24

TOP (0 days)

 

11/14

CLOSE/CASH (9 days)

 

11/01

TOP (18 days)

 

10/26

BOTTOM (18 days)

 

10/2

TOP (4 days)

 

9/26

BOTTOM (14 days)

 

9/6

TOP (15 days)

 

8/15

BOTTOM (4 days)

 

8/9

TOP (12 days)

 

7/24

BOTTOM (10 days)

 

7/10

TOP (29 days)

 

5/26

BOTTOM (33 days)

 

4/10

TOP (8 days)

 

3/29

BOTTOM (6 days)

 

3/21

TOP (5 days)

 

3/14

BOTTOM (10 days)

 

2/28

TOP (8 days)

 

2/15

BOTTOM (23 days)

 

1/12

TOP (6 days)

 

1/04

BOTTOM (31 days)

 

11/29

TOP (28 days)

 

(historical reversal dates and performance figures are published at the bottom of the home page and updated annually)

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 Sell Mode as the market is forming its last swing of the year.

Our next key reversal date takes us into January - so this last move could be a good one, regardless of direction. So which way?

Several of our indicators are bottoming. Bonds are probably closer to a top here - and any selling will be bullish for the market. Technically, the market tested the low on Friday and bounced (well, the nyse bounced more than the nasdaq). On one hand, the volume increased on the break, which means a need to retest the low again.

I believe Friday's action holds the key, technically. A break above, and we're off to the races once again. A break below, then the channel breaks, and we're moving to the next level of support.

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,

 

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