Bi-Weekly Stock Barometer No. 162
7/29/2007 10:05:50 AM
In 6 days, the market wiped out 14 weeks of gains and our Rydex system is up 8.6%. What's next?
Welcome to the Stock Barometer. 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.
In what some are calling the worst week in 5 years, the market gave traders and investors a dose of reality - as (insert worry de jour) was blamed for money retreating from stocks.
Yada, yada, yada.
I've never been one to allocate the market's action to a single or groups of new stories. It's just not how the market works. The market is made up of so many participants, that assigning reason to the action based on a news story has no basis. Think about it - computer trading makes up almost half the market activity. Do you think computers read the news or watch CNBC?
What are these programs geared towards? Technicals. They have no feelings, no emotions; they don't care about making or losing money. They're simply algorithms - as a trader, you need to think like an algorithm.
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 will be day 9 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
2007 Potential Reversal Dates: 1/10, 1/14, 1/27, 1/31, 2/3, 2/17, 3/10, 3/24, 4/21, 5/6, 6/15, 8/29. We publish these dates up to 2 months in advance.
I remain in the camp that 6/15 appears to be a top (More so on the NYSE), suggesting a move lower into 8/29.
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.
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, 11/28.2005 Potential reversal dates based on 'other' cycle work were 12/27/04, 1/25/05, 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). Note we recently changed bottom and top to read buy and sell.
| • | 7/31 | Projected BUY Signal (10 days) | |
| • | 7/17 | SELL (3 days) | |
| • | 7/12 | BUY (15 days) | |
| • | 6/20 | SELL (4 days) | |
| • | 6/14 | BUY (20 days) | |
| • | 5/15 | SELL (27 days) | |
| • | 4/5 | BUY (7 days) | |
| • | 3/27 | 3/27 SELL (13 Days) | |
| • | 3/08 | BUY (34 days) | |
| • | 1/18 | 1/18 SELL (4 Days) | |
| • | 1/11 | BUY (17 Days) | |
| • | 12/22 | SELL (6 Days) | |
| • | 12/14 | BUY (0 days) | |
| • | 11/24 | SELL (0 days) | |
| • | 11/14 | EXIT/CLOSE/CASH (9 days) | |
| • | 11/01 | SELL (18 days) | |
| • | 10/26 | BUY (18 days) | |
| • | 10/2 | SELL (4 days) | |
| • | 9/26 | BUY (14 days) | |
| • | 9/6 | SELL (15 days) | |
| • | 8/15 | BUY (4 days) | |
| • | 8/9 | SELL (12 days) | |
| • | 7/24 | BUY (10 days) | |
| • | 7/10 | SELL (29 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)
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.
OIL Spread Indicator (AMEX:USO) *NEW*
We look at the price of oil as its level and direction can have an impact on the stock market, which we'll examine over the coming months and years.
Summary & Outlook
We remain in Sell Mode, expecting the market to set up a bounce during the coming week and that bounce will set up a retest of the lows and quite possibly a larger final move lower into the end of August.
The system worked much better on this signal - actually getting us in slightly ahead of the large move lower - which is what it should be able to do better over the remainder of the year. But one signal does not an improved system make, we need to see how this performs in the higher volatility environment, which has more volatile swings.
Here's a look at the QQQQs:
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Welcome to the Stock Barometer. 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.
Have a great rest of the weekend.
As always, if you have any questions or comments, feel free to email me here at jay@stockbarometer.com.
Regards,
