Expect A Bounce
10/24/2012 8:10:56 AM
As Sell Pressure Picks Up...
Real quick update on our trade here:
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The level of selling on Tuesday was enough to trigger our short term trin bounce. Looks like this may be a stair step sell off. Overnight the futures bounced and tested the trading highs from Tuesday. That may have been enough to satisfy our trin bounce. We'll see more today.
One thing lacking in this sell off is volatility. That suggests to me that we haven't seen the bottom yet. But obviously every day the market sells off brings us another day closer to a bottom.
The timing of the month end and the election are becoming more and more critical. Overnight there was also a record set on Intrade in the money voting for a romney win. Call it a break out if you will. I'll throw the chart up on my blog this afternoon. It won't fit in my article. So there's a sea change in the election.
We are 5 days away from the October 30 Key Reversal Date. A bounce could last 3-5 days. And then a larger move lower. There's an election signal on the DOW that's 90% accurate that says if the market is lower then where it was on Labor day, then the encumbant loses. So I think both camps are really watching the markets here...
I also talk about the perfect storm for stocks is forming with bonds and the dollar - if there's one thing that can keep these markets moving lower is both of those moving higher, combined with funds selling for their early year end (10/31).
Here's a look at the global stock 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
remains in Sell Mode as we're looking for a move lower into 10/30 and a consolidation of that low into 11/15.
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 Key Reversal Dates
2012 Potential Reversal Dates: 1/12, 1/27, 2/16, 2/23, 3/16, 4/9, 4/25, 5/26. 6/2, 6/15, 7/2, 7/25, 8/13, 8/30, 9/8, 9/25, 10/7, 10/30, 11/15, 12/17, 1/15/13. These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.
With a bounce into 10/7, we're looking for markets to move lower into 10/30.
We added the last date for the year and the first date of next year... Again, how the previous dates set up, predict future dates (rule of alternating) but there is no guarantee that will be the case.
Our IRG Market Timing and Sentiment data service shows the performance of these forecast turn dates going back to 2003 and for the remainder of 2012.
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.
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'.
QQQ Timing Indicator (NASDAQ:QQQ)
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 (ARCX: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 maintain hundreds of popular and proprietary technical indicators that break down market internals, sentiment and money flow to give YOU unique insight into whether you should BUY or SELL the market. We feature at least one here each day in support of our current outlook.
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Daily Stock Market Outlook
We remain in Sell Mode, looking for a move lower into 10/30. Now cautious of the 11/15 date being a 9 month cycle low date as well. In the very short term, the market will bounce. Whether or not that turns into a multi day move higher is the question. That could position the market for a bounce into 10/30 and a move lower into the election...
The above chart shows the Equity Put Call Ratio - which is at a relative low. I expect a higher level of put buying to mark this bottom, and volatility to pick up, but we're not there yet.
Bigger picture - if we get that bond rally, odds are the S&P will test this longer term uptrend.
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Here's our current positioning.
Last Recommendation - 9/25am - SHORT QQQ
Status - Initial trades are at the highest risk.
Consideration - Always maintain stops per money management above.
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