9/2/2007 10:00:07 AM
Friday's action suggests a top, but short or mid term - let's take a look here.
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Stock Barometer Analysis
The barometer has given us a Buy Signal, placing us in Buy Mode.
The Stock Barometer is my proprietary market timing system. The direction, slope and level of the Stock Barometer determine our outlook. 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.
Stock Barometer Cycle Time
Markets are closed Monday. Tuesday will be day 1 in our Up 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
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, 10/19. We publish these dates up to 2 months in advance.
Can the market rally to 10/19? Likely not. That suggests an intermediate reversal at some point.
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 signals or cycle times. However, due to their past accuracy 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, 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, GLD, USD, USO 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. 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 Spread Indicator (NASDAQ:QQQQ)
The QQQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us an idea of the next turn in the market.
Gold Spread Indicator (AMEX:GLD)
To trade Gold, utilize the Gold ETF AMEX:GLD. This gives us a general gage to the overall health of the US Economy and the markets, as well as to assists us in the entry of positions in our stock trading service.
US Dollar Index Spread Indicator (INDEX:DXY)
To trade the US Dollar, I'd utilize the Power Shares AMEX:UUP: US Dollar Index Bullish Fund and AMEX:UDN: US Dollar Index Bearish Fund.
Bonds Spread Indicator (AMEX:TLT)
To trade Bonds, I recommend Lehman's 20 year ETF AMEX:TLT. Note that 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.
OIL Spread Indicator (AMEX:USO) *NEW*
To trade OIL, utilize AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction can have an impact on the stock market.
Supporting Secondary Indicator
Note here the potential energy that this indicator measures and its current level and change in direction suggests higher prices ahead.
I monitor over a hundred 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 - and to give you an education on what professional traders utilize.
Summary of Daily Outlook
We have a Buy Signal, placing us in Buy Mode.
The last signal produced a 6.3% return in 11 trading days. Annualized that's a 143% return. Ok - back to reality - we have never produced a 143% return and that's why you should never quote annualized returns based on one trade. If you look at our last 5 trades, we're up 7.1%. However, if you go back to the beginning of the year, we're only up 3.2% (cumulative, based on the Rydex closing price). So it hasn't been a great year.
Examining the tweaked barometer signals, we did have a bounce on 8/29 but it didn't exceed the previous 2 days reading (on 8/27). Thus while we had the option to change signals, we decided to wait for a signal above 8/27. This is intended to prevent too much whipsaw action on signal clusters (that only happen periodically). And this is the only area where subjectivity remains in the system. The following days signal moved lower and we did not issue a signal. Friday's trade was more than enough to cause us to issue a signal.
Attempting to define clusters... Since we tweaked the barometer, which I ultimately believe will produce some pretty decent relative returns over the course of the remainder of the year, this recent action has made me sit back and try to define a cluster move versus a real change in direction. I think at the end of the day, a single day reading that produces a barometer position change of higher than 3-4% at middle to lower levels and 5-6% at higher levels (note the inverse scaling of the barometer) will produce a better response rate and make the barometer more responsive.
We'll see - let me know if you have any questions. Of course, understanding that this is system trading and there's a bridge between system and intuitive stock trading. Learning how to trade will ultimately bring you towards some type of system when establishing your trading plans. When I take on individual clients to teach them to trade, it's quite a fun process. I normally start with a few pages of questions so I can establish a baseline and determine where this trader fits in the overall knowledge spectrum. We normally spend our first session reviewing these questions and their implications on the client's ability to trade. I also spend time determining the client's trading time frame, which is a combination of their internal clock and the time they have available in the day or week to trade. And finally, we get into reviewing trades. At first we start with paper trades but then we ask the client to move to real trades once they are making sound paper trades.
The transition time from novice to fully trained trader varies for each individual. I always say that it takes at least 2 years to learn to trade. It's simply part of the learning process to go through the emotional swings and the number of mistakes that you're inevitably going to make. Professional guidance definitely helps expedite the curve, but there are some lessons that can't be learned without learning them on your own. If you're in the Massachusetts area and are interested in one on one tutoring, feel free to contact us.
If you have any questions or comments, email me at Jay@stockbarometer.com.