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March 11, 2007

Weekends
by Jay DeVincentis

Bi-Weekly Stock Barometer No. 153
3/11/2007 12:49:39 PM

Dear Subscriber,

Unlike many other jobs, with trading, what you do on weekends is critical to your success. Here's why.

Welcome to the biweekly stock barometer. This article comes out every 2 weeks and gives our big picture view of 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 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. We're also going to be releasing a free trading video in 2007 - so sign up today.

Here's a weekend article from our stock trading services.

Unlike many other jobs, with trading, what you do on weekends is critical to your success. Here's why.

Trading is all about emotions. And when the market is open, it's very difficult to control your emotions. And when you're emotions get involved in your decisions, then the decision is likely to be flawed.

The best way to take the emotion of the trading day out of the equation is simple to do your homework when the market is closed. That leaves weekends.

No CNBC, No futures, no talking heads (unless you watch Fox). Just you and your computer and as many stock charts or screens that you have time to run through. Grab a cup of coffee - grab your morning paper - and you're good to go. Plenty of time to plan you trade - figure out an entry point, a methodology or trade type and stop and target parameters. No Jim Cramer wearing a bear mask screaming Buy! Buy! Buy!

For me - I'm a laptop guy - who's worn a hole in his couch working on my trading and market algorithms. That's my comfort zone.

As for screens - there are so many out there, that you simply need to find one that works for you. This is an area in my basic trading courses where I spend a lot of time talking to traders - where to find ideas. And the problem isn't as much where to find ideas as it is about how to narrow down those ideas into one or two stock trades. Even if you read IBD - you're starting with 100 stocks.

I have about 20 watch lists and 19 categories of screens - and each of those categories has between 10-20 screens. That's a lot to look at.

The good thing is that you don't have to look at it all. Since I trade mostly for others, and I have several different types of services, here's one thing that I do. First, I go through my technical market work. This takes an hour or so. I collect data and put it in my spreadsheet and it tells me (through algorithms that I've developed over the years) if it's time to buy or sell. I first review current stock and ETF positions for any of my services and determine if it's time to sell. From there, I look at my gold & IPO watch lists and my Dividend, Low Priced and explosive stock scans. If I find some candidates, I look more closely at their daily and weekly charts - since the timing of my trades is more intermediate term.

And that's it for searching. When I'm looking for a candidate, I break it out by the type of trade. This is where experience and/or type of service make a big difference. For my longer term services, I will take a longer term trending approach. And then based on market conditions, I may be more or less active. At some point in your career you'll realize that you don't have to trade every day. And that patience will make you a better trader.

I also get this question a lot - Jay, what if you read the market wrong? Well, that is one risk of trading. One solution to take market timing out of the equation is to make one trade every week on Monday (or any fixed day). There will be times it seems obvious not to trade - and those trades may turn out to be your best trades. Did you ever look back and say, gee - I really wish I made a trade last week? Well, using a fixed trading schedule will help you get past market timing issues.

So what's happening this week? I'm still amazed at the impact of the sub-prime mortgage market on the rest of the market. It's actually delayed me in putting together a Dividend Stock Paying Portfolio for 2007. For example, a stock that I've traded in and out of a lot in the past - NEW - is getting crushed, recently dropping from 33 to 3. That's risk. So when I tell you that you can lose everything you've invested in a position, I'm not kidding. This drop took place over 5 weeks. Just enough time for someone hanging on looking for a bounce to go crazy and swear off the market forever. I am a fan of a concentrated stock portfolio - but I'm also a fan of setting tight stop rules and following them to a T. The less concentrated your portfolio is, the more it can survive a one stock blow up. Money Management is also something I'll cover in more detail in an upcoming article.

That's it for this weekend. On an administrative note, I'll be gearing this service to cover material from my stock trading secrets class. If you're interested in attending a seminar and learning more about trading, feel free to contact us and we'll put you on the list.

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 2 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. We publish these dates up to 2 months in advance.

We are at the 3/9 (3/10) date and while it looks like it could be a top, with the market bouncing to the 38.2% retracement level, the level of bearishness suggests that we are going to move up into 3/24 - meaning that people are betting some pretty big dollars that the market is going to move lower. And when the crowd leans to the left, we lean to the right.

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.

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 & INDEX:XAU.X)

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.

Summary & Outlook

The barometer issued a Buy signal this week placing us in Buy Mode. The alignment with the recent reversal dates suggests that the 3/9 could have been either a top or a bottom. Given the high level of pessimism, meaning that everybody thinks the market is going to go lower, it is likely that the market will move higher into 3/24 - either testing the broken trend line or going up as high as to test the gap from February 27th.

Again, if you're new to the biweekly stock barometer, welcome. This article comes out every 2 weeks and gives a big picture view of the market and our recent activities. 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 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 a free trading video in 2007 - so sign up today.

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

Regards,

Jay DeVincentis
Dynamic Trading

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.

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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.

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