Dollar, Bonds and Stocks - Round 2
9/21/2011 9:02:43 AM
Warning Signals Start Flashing
If you're new to my philosophy on the markets, you'll know that I'm not into news much. I don't think news drives the market like you'll see on CNBC. Otherwise, we could all just turn on CNBC and follow their advice and get rich. I'm not sure about you, but I watch CNBC all day long and you have to recognize their place. They're just a news outlet. They're content. That's it. They present so many diverse opinions, that an individual will tend to hear what they want to hear, not what will make them money.
So what moves the market? It's all about how traders position their money. And when I say traders, I'm talking everyone, investors, institutions, hedgies, etc. That positioning is what determines where the market will go. So it's not the news that moves the market, but the market's overall reaction and positioning to the news.
The nice thing about this, is that it allows us to take current news events and compare the market positioning to points in the past and draw profitable conclusions. So if you're looking for me to give a darn about what the fed is going to do today, you're not going to get it. As a trader, I do look at the timing of the moves, as the timing is critical to traders. I may press the buy or sell button right before depending on how the market sets up intra day.
And it's important to know that you won't know until you get there... The more you establish a bias before an event, the more likely you'll be wrong. There are many short, intermediate and longer term indicators to read the market that understanding their impact in 'time' - takes a while.
If you're interested in learning more, I'll be going into more detail on this when I speak in Chicago this October at the World Money Show.
So where are the markets positioned now? I'm still bullish. It's also important to understand that some calls on the market are more easy than others. I've been looking for the markets to hold the lows of the past several weeks and I've been looking for a move higher. We've got all of that, now what's going to happen.
This is usually where I'd say this is where the rubber meets the road. I don't think the markets have done enough upward movement to put in a top. So I remain bullish here. That doesn't mean we won't see a short term pull back. But longer term, I'm bullish. There are things I need to see before the market puts in a mid term top - where I'd prefer to get bearish.
Be my guest at this year's World MoneyShow Chicago, October 20-22, 2011, at the Hilton Chicago Hotel. Don't miss out...register FREE and be sure to mention Priority code 023768! Click here to see more details about when my session will be and what it is about.
Here's a look at the global markets:
On the economic front, here is the schedule for this week. Pay close attention to the timing of the report and the potential for the markets to make short term reversals at those points.
On to the charts:
Stock Barometer Analysis
The barometer is in Buy Mode, and we expect this pattern to play out for further upside - into 9/25.
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
2011 Potential Reversal Dates: 1/15, 1/29, 2/16, 3/10, 3/18, 4/6, 5/21, 5/31, 6/13, 6/24, 7/16, 8/1, 8/19, 9/4, 9/25, 10/21, 10/25. We publish dates up to 2 months in advance.
We believed 9/4 marked a low, and that we'd rally into 9/25. Seasonality is pointing lower. Our next key reversal date is 9/25. Beyond that, we're looking out into October.
There is a chance that the markets will reverse here for yet another test of the lows. And from a 9/25 low, move higher into October, inline with normal seasonality patterns. We'll be watching this one closely - but it's never a bad idea to lock in some profits when you get a chance.
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.
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, 11/21, 12/19. We publish dates up to 2 months in advance. 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 Timing/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 Timing 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 Timing 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 Timing 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 Timing 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 Timing 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.
Secondary Stock Market Timing 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.
As an annual subscriber to any of our services, you will get access to all our charts and research. Email Carl@stockbarometer.com to upgrade and also save 20% on your subscription.
Daily Stock Market Outlook
We remain in Buy Mode, looking for the markets to move higher into the end of September.
Again, 10/18 to 10/21 are the next dates of focus following 9/25.
The above chart shows the Equity Index Option Volume Ratio. When it rises, it suggests that the individual is back in the market. I prefer to see it rise before the market tanks. And we're not there yet, by any means.
Gold and Oil - Let's have a little discussion on volatility.
I'm a fact guy. If I can't chart it related to an index and show some correlation, then I don't pay attention to it. My analysis is all about facts, anything else is noise and you must learn to eliminate it from your thought process.
Oil volatility is much like market volatility:
Based on this positioning and thinking that the markets will move higher, I would buy lows on oil here.
Gold volatility is the opposite - high volatility tends to stall price action:
This suggests to me that gold has room to go lower. And will. And that will be bullish for stocks to rally into month end.
So as we talked about yesterday, it's all about bonds and dollar action here. Now a little bit about fed days like today. The volatility can be a bit unnerving. And many institutions will wait and see, ad act the day following the Fed Day. So there's a tendency for the day following the fed day to get reversed in the short term.
So the dollar and bond test of highs is still going on and their next moves will have implications in the stock market - as bond selling will automatically result in a boost in the indexes as computers automatically rebalance on a daily basis.
If you're looking for more information, please visit our blog - I'll have updates and publish other articles there. http://investmentresearchgroup.com/Blog/ I've been laying out an oil short trade for a while now. Oil should bounce in the short term but longer term, I see it setting up to head lower.