Opening Whisper - Are You Listening?

By: Greg Miller | Fri, Mar 11, 2005
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In my email to subscribers on Monday March 7, I suggested that I was going to a "Cash" neutral position in the face of the dramatic NDX gain of 1.62% on that date. This one-day gain on the back of prior stale sell signals seemed to indicate that the market was poised for a short-term gain. On Monday however, the Dow Industrials were flat, even after their 1% gain on the prior Friday. The market showed no follow-through in the Tuesday - Thursday action. At this time the "Cash" signal on Monday appears to have been a false signal. I wish I had that one back. But we aren't afforded the luxury of hindsight before something happens! Volume has been limited and the NDX did not break out to new highs.

So what did we learn from all of the see-sawing between the NDX and the other market indices this last week? The whisper is a little clearer today - Stay with your main money-making signal (MACD) when the market appears to be in a consolidation phase. The markets tend to be volatile at tops and more so at bottoms. One way to confirm what the market is whispering is to look at other indices including shorter and longer time scales. This is easy when using StockCharts.com. First, set up our main chart model as shown below using the parameters on that chart. That chart is set up for "Weekly" periods. Next, just simply change the "Weekly" period to "Daily" and see what the indicators are telling you. Lastly, try "Monthly" for the period. As I do this, I don't see anything that really causes me to be bullish on the NDX or COMP. The other indices; INDU, SPX and OEX make a slightly more bullish case since the Monthly MACD Histogram in those indices is in a rising trend following a long-term sell signal in mid-2001.

The VIX is up a little from last Friday, but is not really confirming a sell signal. The US dollar index is not doing well. This year still looks like it is shaping up much like 2002.

Our Trading System - What The Numbers Are Telling Us

An email was sent to subscribers and the daily signal went briefly to "CASH" on the close Monday March 7. However, that strong signal proved to be a head fake, so we must get back to a weekly "SELL" signal. One good way to move from cash back to sell is by buying a little Rydex RYVNX (Venture 100) over the next few days until you get to a 100% position. Our indicators are still on sell, but gyrated a little from last week. The 9x18 Moving Averages are within a few days of doing a bearish cross, but are not quite there yet.

How many different ways can we describe a market that is FLAT - FLAT - FLAT! We need this market to trend dramatically for our system to make money. As long as it remains in this stalled mode, we are only going to lose using a trend-following system.

Does the INDU seem to want to make a run at 11,000? Will we see a pop in the indices in the next week or two? ExxonMobil has contributed to the Dow Industrial averages lately. How long will that last? A dramatic move is coming and our trend-following system will profit from it. Hang in there and let's not try to anticipate our indicators!


NDX - Chart Model - Thursday March 10, 2005

What Is The Current Sentiment?

Let's look at a few of our Sentiment Charts to get some indication of where this market is currently positioned.


3 year NDX / INDU Ratio - NASDAQ 100 Leading Lower

This 3 year chart shows the NDX/INDU relative tech ratio. The Nasdaq tech has led us higher over the last three years, but now appears to be rolling over since the first of December 2004.

This is bearish and supports our sell signal.

 

4 Yr Ratio SPX / VIX Volatility

This chart shows the ratio of SPX to VIX (volatility) for four years. This ratio is very near an all-time high and appears to also be forming a topping pattern.

A move of the 8 week EMA below the 30 week EMA of this ratio will confirm a sell cycle in the broader market.

 

Material / Financial Sector Ratio - 3 Yr.

The Materials/Financial sector ratio chart is telling us that we are in an uptrend. This trend is fairly strong and is signaling inflation is coming.

This trend is good for gold, metals and commodities. Should the stock market tank at some point this year, we may see the big players jumping on gold and commodities BIG TIME!

 

$XAU / SPX 500 Ratio - Weekly - 3 years

Here's an interesting sentiment ratio chart - $XAU / $SPX. The relative strength between Philly Gold & Silver Index and the SPX.

The weekly MACD on this chart has turned up implying that Gold & Silver Mining Stocks are looking to be a better buy than the S&P 500 over the next 3 months. Another inflation marker?!

Watch this one.

Where Do We Go From Here and How To Listen For the Next Signal?

Listener Summary for the Week

As I said last week, "we are looking for a major change of direction in the next few days." We didn't get it this week, but the longer we stay in the consolidation pattern, the more dramatic will be the breakout.

I am getting back to my fully short position in line with our Sell signal. Last Friday's (March 4) jobs numbers gave the markets something to rally on, but you really need to see this article on those "great" jobs numbers by Rob Kirby - "Send In the Clowns". http://www.safehaven.com/article-2707.htm - Maybe those great numbers are being so manipulated that they hide what the jobs market is really whispering to us.

The VIX has moved off of its major double-bottom low at 10.90 and is now reflecting the fact that option traders are back to buying some protective puts. Watch it closely.

Watch the dollar index (Symbol $USD in StockCharts.com). If, or rather, when it drops below 80, we might get some substantial moves in the treasury and stock markets. If you want to get some perspective on the US Dollar from Warren Buffet, then read his interesting comments on currencies starting on page 20 of Berkshire Hathaway's 2004 Annual Report: http://www.berkshirehathaway.com/2004ar/2004ar.pdf

The Market is whispering now, but may be getting ready to shout.

Are you listening?

The Market Listener Indicators

Week Ending Slo. Stoch. StochRSI MACD ROC Signal
Thurs Mar 10 Sell+ (?) Sell Sell Sell Sell
Mar 03, 2005 Sell Sell Sell Sell+ Sell
Feb 25, 2005 Sell Sell Sell Sell Sell
Feb 18, 2005 Sell Sell Sell Sell Sell
Feb 11, 2005 Sell Sell Sell Sell Sell
Feb 04, 2005 Sell Cash Sell Sell Cash
Jan 28, 2005 Sell Sell Sell Sell Sell
Jan 21, 2005 Sell Sell Buy- Sell Sell
Jan 14, 2005 Sell Sell Buy Sell Sell
Jan 07, 2005 Buy Sell Buy Sell Sell
Dec 31, 2004 Buy Buy Buy Sell Cash
Dec 23, 2004 Buy Buy Buy Buy- Buy
Dec 17, 2004 Buy Buy Buy Buy Buy
Dec 10, 2004 Buy Buy Buy Buy Buy
Dec 03, 2004 Buy Buy Buy Buy Buy
Nov 26, 2004 Buy Buy Buy Buy- Buy
Nov 19, 2004 Buy Buy Buy Buy Buy
Nov 12, 2004 Buy Buy Buy Buy Buy
Nov 05, 2004 Buy Buy Buy Buy Buy
Oct 29, 2004 Buy Buy Buy Buy Buy
Oct 22, 2004 Buy Buy Buy Buy- Buy
Oct 15, 2004 Buy Buy Buy Buy- Buy
Oct 08, 2004 Buy Buy Sell+ Buy Buy
Oct 01, 2004 Buy Buy Sell+ Buy Buy
Sep 24, 2004 Buy Buy Sell+ Buy- Buy
Sep 17, 2004 Buy Buy Sell+ Buy Buy
Sep 10, 2004 Buy Buy Sell Buy Buy
Sep 03, 2004 Buy Buy Sell Sell+ Buy
Aug 27, 2004 Buy Buy Sell Sell Buy
Aug 20, 2004 Sell Buy Sell Sell+ Cash
Aug 13, 2004 Sell Sell Sell Sell Sell
Aug 06, 2004 Sell Sell Sell Sell Sell
Jul 30, 2004 Sell Buy Sell Sell+ Cash
Jul 23, 2004 Sell Sell Sell Sell Sell
Jul 16, 2004 Sell Sell Sell Sell Sell

* Note - Our Newsletter is published on Thursday evenings so we make an attempt to "predict" the signal at the end of Friday. You should not base your trading on this or any prediction, but I can trade 10 minutes prior to the close on Fridays (or other days during the week) when I see that one or more of the signal indicators have changed signals. This is particularly important if I am going to a CASH position in order to preserve capital. The above table shows the results of the WEEKLY - FRIDAY SIGNALS with the exception of the latest week, which only shows the END-OF-DAY THURSDAY SIGNAL POSITIONS. The latest signal position may change in next week's newsletter due to a dramatic move on Friday after the Newsletter is issued.

Listen To What He Says

From Psalm 25:4-5 (KJV):

{A Psalm of David} "Shew me thy ways, O LORD; teach me thy paths. Lead me in thy truth, and teach me: for thou art the God of my salvation; on thee do I wait all the day."

I am still working on the Art of Listening, and hope that you are also!

P.S. - You may freely distribute this email or report to anyone who might like to have it. If you have any questions, or would like to be added to my subscriber list (which is free for now), you can email me at gmiller27@austin.rr.com.


 

Greg Miller

Author: Greg Miller

Gregory W. Miller, P.E.
The Market Listener
An Educational Newsletter for Stock Market Trend Timers

Paid Subscribers receive mid-week alerts to market changes that impact our system. The alerts advise of changes in stop level or signal changes prior to the Friday close of trading.

The Market Listener Trading System - My adaptive trend following trading system is the result of years of mistakes. I always seemed to be zigging when I should be zagging. My investing was based too much on emotion and inputs from so many varied newsletters and methods. After what has been literally years of personal research into cycles, Elliott Waves, artificial intelligence and many other systems, I have learned that my own trading style is best handled by avoiding the "art" of prediction at all costs!!! When I looked at moving averages for indication of trend direction, it seemed that they too were always 180 degrees out of phase with what I should have done. My conclusion, after many losses and much frustration, is that I needed to keep it very simple and let the market tell me what it wanted to do. In particular, I wanted to follow the trend, which is your friend, until the market whispered, or shouted to me that it wanted to change directions. And then, I found that Stochastics and Rate of Change indicators help me go to cash until the trend reverses or continues. Thats how my trend following system & its cash management component developed. I trade Rydex Venture and Velocity funds by which I can go short (x2) or long (x2) the NDX (NASDAQ 100 Index). I hope my newsletter and its insights can give you an education on alternative investment strategies. You might find your own technique or modify mine.

Links:
Rydex Funds: www.RydexFunds.com
Stock Charts: www.StockCharts.com

About the Author: Gregory Miller is a registered Professional Engineer (PE) in the State of Texas. He has been involved in electrical engineering and projects in the U.S. and some far-flung regions of the world. Greg has studied the markets for decades and enjoys applying his analytical abilities and computer number crunching to the science of investing.

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