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October 23, 2006 DT: Ahead of the Fed |
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Prices are consolidating below last weeks gap lower and ahead of the Fed. WEEKLY WRAP-UP Dear Speculators, If you're new to Dynamic Trading, welcome. This article comes out each week and gives a mid term view of our expectations for 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 a 4-week free trial of 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 segments of my trading video for free - so sign up today. Each week we take a look at 5 mid term indicators to get a big picture view of the market. The indicators primarily focus on investor sentiment. This week we have a 10-week cycle top and remain in the bearish part of the 20 and 40 week cycles. This is the most bearish of our indicators, but as with any indicator it doesn't guarantee a reversal. No indicator works 100% of the time. Investor sentiment is supporting the markets move and not near an extreme. But it doesn't have to reach an extreme, it just needs to turn lower to give us a sell signal and reinforce a bearish outlook. The Dynamic Oscillator focuses on the short term moves. It's at a relatively high level - and suggests that while the market remains strong, it eventually will move to lower levels. That doesn't mean that prices will move efficiently with the indicator, it just means that the indicator is likely to move lower. In fact, during a bullish move, the market is less likely to retrace as the indicators move lower. We monitor efficiency of these indicators as that in and of itself is also a good indicator. The NDX as we see it, gapped lower last Tuesday and prices have been consolidating below the gap, which is a little uncharacteristic of the current rally. To me this suggests that we'll move lower to test the secondary uptrend in the market. Of course, if you have any additional questions, please feel free to email me at jay@stockbarometer.com. Dynamic Trading Signals are based on a series of Oscillators tuned to the short and intermediate term movement of the market. Our goal is to be in the market at all times and switch from bearish to bullish positions in line with the markets movements (except for the Options service, which is subject to greater volatility and time decay). Periodically we will go to cash and await the next system trade. DYNAMIC TRADING OSCILLATOR
10/20/40 WEEK CYCLE The following chart shows our 10/20/40 week cycles. The 40 week is also referred to as the 9-month cycle. Cycles are not short term tools for determining precise entry and exit points, they're primarily used for intermediate or longer term positioning and forecasting.
This week we'll pull back and look at the longer term view of this indicator as well.
INVESTOR'S INTELLIGENCE BULL BEAR SPREAD Each week, Investor's Intelligence polls a number of newsletter writers. The poll results in a number of bullish advisors and a number of bearish advisors. The difference between those two numbers produces the following chart. It's believed, that when a majority of newsletter writers (like us) are bullish, that the market is near a top, and vice versa. The direction of this line is as critical as the level.
EQUITY INDEX OPTION VOLUME RATIO The market is all about risk, and there are two primary classes of participants in the market, the individual investors and the institutions. Individuals primarily trade equity options and institutions primarily trade index options. So the relationship between the two gives us an idea of how much risk the individual is willing to take on. At tops, the individual tends to take on too much risk, making this indicator rise. At bottoms, the individual is usually washed out of the market, making this indicator fall.
QQQQ v. SPY RELATIVE STRENGTH Risk tells us a lot about the market. This indicator looks at risk from another perspective. When market participants overall increase their willingness to take on risk, it's bullish for the market. That risk shift is shown on the above chart as a shift in relative strength from the Nasdaq to the NYSE. Note when we refer to Nasdaq, we're primarily looking at the QQQQ - since that's the focus of our service. And when we say NYSE, we look at the SPY.
MONEY FLOW This indicator looks at the flow of money in and out of various investment vehicles. For the most part, when money flow reaches an extreme, in either buying or selling, the market is at a top or a bottom, respectively.
NDX CHART
In summary: Dynamic Trading remains on its current SELL SIGNAL. We remain positioned against this trend expecting to close the current positions when our indicators move back into an oversold level. When will the market reach an oversold level? At what price level will they be at? These are questions that will get answered as the market moves lower - if the market moves lower. With a Fed meeting coming up, we do have a catalyst for a strong market move. Reading the market is like solving a puzzle. Each day you get another piece and each trade represents its own puzzle. We look at all the pieces and try to interpret the most likely solution and position to profit from it. Sometimes we'll nail it, and sometimes, well, we won't. But the great thing about the market is that it's continuously setting up new puzzles to be solved and giving us new pieces of data each day to solve those puzzles. Plus there's always a point where the solution to the puzzle becomes so obvious, it's like you're watching a game show on TV and shouting the answer at the TV. That's where we are with the current uptrend. And once things become obvious to the masses, they usually change. Just something to keep in mind as the market obviously remains in an uptrend and will remain in an uptrend until that uptrend breaks. Sometimes it's just as simple as that. Best regards and good trading!
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Jay DeVincentis Trading involves high risk. Past results are not indicative of future returns. Stockbarometer.com and all individuals affiliated with Stockbarometer.com assume no responsibilities for your trading and investment results. Patrice V. Johnson's - J.E.D.I. Trader Explosive Stock Trader Stock Options Speculator Angelo Campione's Advantage Credit Spreads Lynn T's 1-2-3 PLUS Alert ETF Advisor Fundamental Trader Alert Daily Stock Barometer QQQQ Trader and Rydex Trader: issued by 10pm in the evening when the Barometer system issues a Buy or Sell Signal. Stock Barometer Premier Membership Click Here to visit our subscribe page learn more about any of our services. Earn Money referring us to your friends, family and other traders. Click here for details: http://www.stockbarometer.com/affiliate.aspx To ensure delivery and prevent this e-mail from being delivered to your bulk mail folder, please add our 'From' e-mail address, info@stockbarometer.com, to your address book. Important Disclosure Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results. Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments. In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update. For a complete understanding of the risks associated with trading, see our Risk Disclosure. Copyright © 2004-2008 Investment Research
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