Bi-Weekly Stock Barometer No. 167
10/7/2007 8:11:28 PM
Interested in one on one advice? Read on to find out more.
Note - We have a signal - please see the Summary and outlook at the end of this article.
To follow our daily signals and trades and learn more about our system, click here for a free trial. Sign up for our free weekly TRADE TUTOR newsletter to get up to date advice from our Pro Traders.
In body building, there are a few simple initial tests to determine your ability to succeed. You can take measurements to see where your muscles connect and whether you have long muscle bellies or not. Lacking the proper genetics, you can save yourself a whole bunch of time trying to be a professional body builder - since you'll never get there.
In trading, unfortunately, we can not just take a tape measure, make you flex and measure the connecting points of your muscles to your joints. In trading, you can either find out on your own or you can hire a professional to tell you.
Sure there is one simple test. It's the profitability test. Are you making money or not? Are you making more money than you would have if you had simply put your money in an S&P index fund? If you're not, then you have two choices.
The first choice is real simple. Take all the money in your trading account, put it in a mutual fund, and go off and enjoy your life. Because you're bound to make a mistake that will cost you more money than you can afford to lose.
The second choice is, if you really love to trade and think this is for you, is to seek professional help.
I'm not talking about sitting down with a shrink. And I'm not talking about buying the latest trading book from the latest guru. I'm talking about sitting down with another trader and having them analyze everything about you and your trading style to see what you're doing wrong and figuring out what you need to do to fix it.
Don't get me wrong, trading books are good to read. I've got hundreds. Even if you're not a day trader, it's good to know what day traders are looking for. It's important to understand wave theory. It's essential to know what Japanese candlesticks are and even more importantly; what candlesticks are not. It's knowledge that will improve the entry and exit timing of your trades.
It's also what differentiates us traders. Each of us has a specific knowledge. Each of us has our own unique trading signature. You could give two traders the exact same material to learn from and the exact same timing of taking the input. But at the end of the day, because of the inherent individuality of all of us as human beings, you'll still end up with two unique traders.
Like finger prints, no two traders are alike.
That's precisely why you need to sit down with a professional and have your trades analyzed to determine what you're doing right, what you're doing wrong and what you need to learn to become a better trader.
What would a professional look at?
The key for a professional is to baseline the student; to spend as much initial time as necessary determining where this trader is on the trading knowledge and experience spectrum.
This is done with a series of initial questionnaires. Some questions are preliminary to test understanding of basic concepts. For example, some traders - especially the new ones, don't understand the difference between trading and investing and more importantly don't consider separating these two concepts by using separate trading and investing accounts.
There are some trading styles that certain people might think cross over into investing - but get it straight - trading and investing are entirely separate concepts. Investing is the belief in a company's ability to perform and or believing in their product and then buying shares in that company and holding until those two premises are no longer valid. Or building a portfolio of a certain diversification across stocks and bonds, market cap, industry ETFs, etc. will allow you to achieve your goals. That's investing.
Trading is much easier. It's buying at a specific price level, with a specific price target in mind with a plan that allows you to get out if you're wrong so that you'll live to trade again. Any more than that and you're not trading. Any less, then you're throwing your money away.
Do you want to learn how to trade in the comfort of your own home? Whether via email, face to face, phone, or in our offices, we accommodate you.
Do you need to learn how to find stocks to trade?
Do you want individualized focused attention?
Learn at your own speed. Have your trades analyzed by a pro. Expand your trading knowledge. Find out what you're doing wrong.
We don't focus on one methodology - so you're not tied into learning 'our method'.
Many traders pay $500 for a 1-day seminar to sit in a hotel conference room with a large crowd just to get homogenized advice specifically designed for a large audience. This works out to about $70/hour. Unfortunately, these seminars are set up as marketing gimmicks to either 1) get you to subscribe to their service or 2) get you to buy their product.
How much would you pay for individual attention?
Our Trade Tutor service is fairly priced for unparalleled individual attention. It's one on one. If you're not local, we do it over the internet combining phone and computer to deliver one on one advice.
Contact us after you've signed up to schedule your first session.
Regards,
Jay DeVincentis
On to the charts.
Message From The Markets
Market action is ruled by sentiment and by monitoring market internals and studying sentiment you can 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 1 in our UP 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, 10/19, 11/29. We publish these dates up to 2 months in advance.
We're getting much closer to 10/19. Based on the market siting at or near resistance, we'd still like the market to retrace into 10/19.
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.
| • | 10/19 | Projected SELL Signal (10 days from last signal) | |
| • | 10/5 | BUY (2 days) | |
| • | 10/3 | SELL (2 days) | |
| • | 10/1 | BUY (1 days) | |
| • | 9/28 | SELL (12 days) | |
| • | 9/12 | BUY (4 days) | |
| • | 9/06 | SELL (3 days) | |
| • | 8/31 | BUY (3 days) | |
| • | 8/29 | SELL (7 days) | |
| • | 8/17 | BUY (3 days) | |
| • | 8/14 | SELL (4 days) | |
| • | 8/8 | BUY (16 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 | SELL (13 Days) | |
| • | 3/8 | BUY (34 days) | |
| • | 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) | |
| • | (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 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'.
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.
Summary & Outlook
The barometer has issued a Buy Signal - placing us in Buy Mode.
Our expectations are for the market to reverse at some point into 10/19. That's 2 weeks away, so the longer we wait, the more shallow the retracement will be. In addition, our longer term reversal date is at the end of November, so we could see a very bullish year end.
System Performance
The system has struggled to provide positive returns in 2007, starting off with a 5.3% loss initiated on 1/11. The system return managed to get up 9% by 5/15, but hit a recent 13.1% loss in September. The 9/12 trade returned 11.7% (Rydex Venture/Velocity), putting the system at -1.4% for the year. And the system was down 2.3% (on a cumulative basis) before our 10/3 short. Obviously Friday's advance didn't help - putting the system down 6.4% - although the current position remains open.
You may also have noticed that the system has been changing signals more rapidly of late. This is one impact of making the system more responsive to market turns. The net result should be infrequent periods of rapid repositioning. The net impact of the repositioning should be zero, with small gains wiping out small losses. The benefit will be that we should get into larger moves, earlier.
For example, the market seems near a relative high. But breakouts did abound on Friday. That action will likely continue.
To follow our daily signals and trades and learn more about our system, click here and sign up for a free trial. Sign up for our free weekly TRADE TUTOR newsletter to get up to date advice from our Pro Traders.
Hope you had a great weekend.
As always, if you have any questions or comments, feel free to email me here at jay@stockbarometer.com.
Regards,
