12/9/2006 10:12:27 AM

Underlying shifts in the market are making this an exciting holiday trading season.

Stock Barometer Analysis

The barometer remains in Sell Mode.

The Stock Barometer is my proprietary market timing system. The direction or slope of the Stock Barometer helps determine our outlook on the market's direction. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction. The black line is a 5 day moving average of the barometer and may be used to confirm changes in direction. All the information contained in this email is considered in making our calls.

Stock Barometer Cycle Time

Monday is day 11 in our down cycle.

The Stock Barometer signals follow 5, 8, 13, 21 and sometimes 34 day Fibonacci cycles 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.

Similar to last year, the beginning of December is a consolidation.

My Additional timing work is based on numerous cycles and has resulted in the above potential reversal dates. These are not to be confused with the barometer cycle times. However, due to their accuracy I post the dates here. These dates are used to influence how quickly we issue a buy or sell signal.

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.

The following work is based on my spread/momentum indicators for the QQQQ, SPY, XAU, GLD and TLT. They are tuned to deliver signals in line with the Stock Barometer and we use them only in determining our overall outlook for the market and for pinpointing market reversals. I provide the spread indicator charts at least weekly and when they deliver reversal signals. The level, direction, and position to the zero line are keys in these indicators. For example, direction determines mode and a buy signal 'above zero' is more bullish than a buy signal 'below zero'.

QQQQ & SPY Spread Indicator

The QQQQ and SPY Spread Indicators remain in Buy Mode, at or above zero.

The QQQQ and SPY Spread Indicators will yield their own buy and sell signals and may be in Buy and Sell Mode that is different from the Stock Barometer.

Gold & Silver Sector Index Spread Indicator (Index:XAU.X)

The XAU and Gold Spread Indicators remain in Sell mode, xau above, gold below zero.

The dollar Spread Indicator remains in Buy Mode, below zero.

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 Spread Indicator (AMEX:TLT)

The Bond Spread Indicator remains in Sell Mode, at zero.

And all this money needs to find a home - and it usually finds it in stocks...

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

Supporting Secondary Chart

I have over 100 technical indicators, some that are widely followed and some that are proprietary. These indicators break down the market internals, sentiment and money flow and give us unique insight into the market. I feature at least one here each day in support of our current outlook.

Summary of Daily Outlook

We remain in Sell Mode, looking for the market to move lower into the end of December.

That being said, we'll switch our position if this strength materializes into a buy signal - as the Qs bounced off support on Friday following the Jobs Report.

The changes I was referring to in the title were with gold, the dollar and bonds. We're seeing the dollar bounce big, gold starting to move lower as well as bonds moving lower. Of course, all this can change next week as all eyes are focused on Tuesday's Fed meeting and their statements on inflation. I don't go into much more about these economic reports here because it's easy to become biased - and I don't use them in my trading. Bias has no place in trading. We simply follow what the market internals as identified by the barometer are telling us.

As we approach 2007, and look to put 2006 behind us, we'll continue our analysis into the performance and potential drawdowns of the system. Unfortunately, a system that can return 100% in less than a year as ours did is likely to have a drawdown on a proportionate scale. Throw in a skipped signal or two and well, that's where we ended up in 2006. The nice thing about trading is that 2007 is a new year, and we have a clean slate to work with. I've started looking forward to my 2007 projection and see 9 potential good swings in the market place that should bode well for the system.

Here's what I predicted in 2005 for 2006:

Click to open larger image in new window.

We'll be working on our 2007 forecast throughout this month and I usually publish it before the New Year. So stay tuned.

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

Regards,