On The Verge Of A Global Market Meltdown
8/31/2010 8:41:27 AM
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As the market tests recent lows, this test is bigger than anyone knows.
This is a huge week for economic reports, see the list below as there are many things coming up for the market to consider. Plus after the reports this morning, we have the Fed minutes coming out at 2. Always a fun one!
Here are this week's economic reports.
On to the charts:
Stock Barometer Analysis
The barometer remains in Buy Mode, but lows are getting tested. If these lows fail, it has major implications for the market.
As I've been saying, I am very cautious with the Fed buying bonds and manipulating markets as they are. This has me cautious during the repurchase period, which ends in mid September.
If the market holds these lows and reverses higher, it should move higher into 9/7 to 9/14 - before the larger move lower begins.
The conventional wisdom is that individual investors are running into bonds. That couldn't be further from the truth. The only one pumping up bonds here is the Fed. How can I say that? Well, for the past few years I've been studying money flow. Here's the money flow for bonds:
What you actually see is money flowing out of bonds JUST BEFORE bonds take off. So the next time they blame this on the individual investor, think again - it's not us, it's them.
The good news is that this will eventually result in a significant bounce in stocks. The question is a matter of timing.
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. Trend and support can override the barometer signals.
Money Management & Stops
To trade this system, there are a few things you need to know and address to control your risk:
- This system targets intermediate term moves, of which even in the best years, there are usually only up to 7 profitable intermediate term moves. The rest of the year will be consolidating moves where this system will experience small losses and gains that offset each other.
- This system will usually result in losing trades more than 50% of the time, even in our best years. The key is being positioned properly for longer term moves when they come.
- Therefore it is vitally important that you apply some form of money management to protect your capital.
- Trading a leveraged index fund will result in more risk, since you cannot set stops and you cannot get out intraday.
- Make sure you set your stops so that you can lose no more than 2% per trade (based on the QQQQ if you're trading leveraged funds and options with our trading service).
Potential Cycle Reversal Dates
2010 Potential Reversal Dates: 1/19, 1/28, 3/2, 3/23, 4/7, 5/30, 6/10, 6/28, 7/10, 8/13, 9/7, 10/2, 10/27. We publish dates up to 2 months in advance.
If we do bottom here, the next likely top will be 9/7 to 9/14, followed by a larger move lower into 10/2.
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.
2009 Published Reversal Dates: 1/20, 2/11, 3/7, 3/15, 4/8, 4/16, 4/27, 5/7, 6/8, 7/2, 7/17, 9/14, 10/10, 10/24, 11/12, 11/30, 12/9, 12/21, 12/29. 2008 Potential Reversal Dates: 12/31, 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. 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, 12/23, 12/31, 1/11/08. 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: 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.
Use the following spread/momentum indicators to assist in your trading of 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)
Want to trade Gold? Use our signals with the Gold ETF AMEX:GLD. Gold gives us a general gage to the overall health of the US Economy and the markets.
US Dollar Index Spread Indicator (INDEX:DXY)
Want to trade the US Dollar? Use our signals with the Power Shares AMEX:UUP: US Dollar Index Bullish Fund and AMEX:UDN: US Dollar Index Bearish Fund.
Bonds Spread Indicator (AMEX:TLT)
Want to trade Bonds? Use our signals with Lehman?s 20 year ETF AMEX:TLT. The direction of bonds has 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)
Want to trade OIL? Use our signals with AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction has an impact on the stock market.
Supporting Secondary Indicator
We daily monitor hundreds of popular and proprietary technical indicators that break down market internals, sentiment and money flow to give us unique insight into the market. We feature at least one here each day in support of our current outlook.
Summary of Daily Outlook
We are in Buy Mode, looking for the markets to move higher into 9/7 to 9/14.
Overnight, the move lower in the Nikkei was strong and has influenced our markets by causing lower prices in overnight trade. The dollar is slightly weaker, bonds are bouncing - Gold is pulling back slightly and Oil is hanging on to its short term uptrend.
S&P futures are going to open near lows. The 1040 level has been getting tortured here and is the line in sand for the markets. This is the 5th day that the market will be testing this level, so if it can hold and advance, I expect a couple weeks of bullishness. If not, then look out below.
If you look at the oil Leading Indicator chart, you will see that there is a bounce on our horrizon. If that bounce plays out now or later, that's the big question. However, after the bounce, the longer term downtrend in oil will resume - I'll be playing that in DTO - feel free to play along...
The key to the strength scenario are the dollar and bonds. If the dollar can move lower and the strength in bonds can reverse, this market has energy to run.
There is a plethora of economic activity today and this week, so if you can join us in the chat room, we'll walk you through how the market will move on an intra day basis. Don't forget, access to our chat room is free with your subscription (and a subscription to any of our services) and I'm in there every day to answer your questions.
Here are the indices pivots for today's trade.
These levels can be important for both day traders and investors. How? Well, if you are going to take a stock position, it's always best to get the most efficient entry. Understanding that there are key pivots during the day and key levels that futures traders look for, will help you figure a better entry price (instead of just buying at the open). Combine these levels with the timing of the economic reports on the list at the top of the page, and you can really catch some nice swings in the market. More efficient trade entry increases your relative profit per trade.
I'll be in the chat room from 9:30 to 10:30 (EDT) this morning if you have any questions.
If you have any questions or comments, email me at Jay@stockbarometer.com.