Pre Election Jitters

By: Stock Barometer | Sun, Nov 2, 2008
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11/2/2008 11:02:09 AM

Bi-Weekly Stock Barometer No. 185

With a key reversal 6 days away, here's what to expect out of the election.

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. Also sign up for our free weekly newsletter, where we provide Alerts from our various traders.

We offer a free weekly indicator chart if you visit our home page and scroll to the bottom. This chart will be updated each week, so be sure to check back frequently for updates. www.stockbarometer.com - don't forget to scroll to the bottom.

First, I'm not going to purport to have all the answers - trading is a game of probabilities, so please don't take my guess as an outright call in any way whatsoever. It seems pretty clear that Barack Obama is going to win. And I'm thinking landslide. Also note that I'm not a political guy in anyway - and I'm a perennial republican - because the most important political impact to me is business and investments and over the years I've seen the benefits of a republican administration. Of course you could say that today's problems were caused by the current republican administration, but the financial impact of political impact is quite delayed. Delayed usually beyond the term of the current administration. A President needs to be long term focused. Very long term. This president is going to face challenges unlike any in the past century. Unfortunately, I think Barack will take a Hoover-like approach - so I'm in the double dip recession camp. The market has already taken all of this into account - the real issue of this election is how many republicans remain in the house and the senate. That's the real potential nightmare.

Ok - back to what's important in our arena, what is the stock market going to do this week and how can we profit? We're long the market right now, which is good. However, we went long on the 15th - so we're flat in the Q's and profitable in Rydex (which we enter at the close). The market has made an impressive rebound over the past week and is back up testing resistance. We have a key reversal date coming up 6 days from now - and not another one until December 10th.

Before I get ahead of myself, let's take a look at our charts. These help us put the future in perspective.

On to this week's 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. We may wait for the QQQQs to break support or resistance before changing mode.

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

The arms index or also referred to the Trading Index or TRIN for short, 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 14 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

2008 Potential Reversal Dates: 1/11, 2/1, 2/13, 3/6, 4/5, 4/22, 5/23, 6/6, 6/27, 7/13 9/2, 10/3, 10/22, 11/10, 12/11. We publish these dates up to 2 months in advance.

We've added our final date of the year - 12/11. We were looking at 10/22 as a low. There's no rule that these dates need to alternate highs and lows - they tend to mark lows in uptrends and highs in downtrends. 11/10 could be another low as the markets filter out and respond to this year's election.

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.

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, 12/13, 12/24, 12/31.
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.

 

11/10

Projected SELL Signal (18 days from last signal)

 

10/14

BUY (11 days)

 

09/29

CASH (6 days)

 

09/19

BUY (11 days)

 

09/04

SELL (41 days)

 

07/08

BUY (11 days)

 

06/20

SELL (4 days)

 

06/16

BUY (6 days)

 

06/06

SELL (6 days - intra day signal)

 

05/29

BUY (5 days)

 

05/21

SELL (4 days)

 

05/15

BUY (6 days)

 

05/7

SELL (13 days)

 

04/18

BUY (7 days)

 

04/9

SELL (19 days)

 

03/12

BUY (2 days)

 

03/10

SELL (3 days)

 

03/05

BUY (3 days)

 

02/29

SELL (13 days)

 

02/11

BUY (4 days)

 

02/05

SELL (8 days)

 

01/24

BUY (4 days)

 

01/17

CASH (3 days)

 

01/14

BUY (6 days)

 

01/04

SELL (9 days)

 

12/20

BUY (3 days)

 

12/17

SELL (23 days)

 

11/13

BUY (4 days)

 

(historical reversal dates are published on our home page)

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)

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

We remain in Buy Mode, looking for the markets move higher into early November 10th when the worst case scenario is not realized from the election. That's when the real test will come - to make sure the bear market doesn't re-materialize.

Yes, I'm calling for a post election rally. However, the level of complacency is pretty high here, so depending on how the market plays out the election, we could be in for a move lower into the 10th - to put more fear into the market so it can have a larger rally into December 10th.

I hope you enjoyed 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 also offer a free weekly indicator chart if you visit our home page and scroll to the bottom. This chart will be updated each week, so be sure to check back frequently for updates. www.stockbarometer.com - don't forget to scroll to the bottom.

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

Regards,

 


 

Stock Barometer

Author: Stock Barometer

www.stockbarometer.com

Stock Barometer is completely independent. We have never and will not ever accept compensation from any company whose stock we recommend.

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