Here A Gap, There A Gap
1/9/2013 8:47:46 AM
Everywhere a gap - gap...
Looking at a chart of the Qs, there's some gaps that need to get filled. As we approach a key reversal date, if the lows get taken out, we'll be filling those gaps sooner, rather than later.
As we've been detailing in our 2013 forecast, I'm cautious on the market here. We've been long for most of this move higher, now's the time to consider some defense.
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
We remain in Buy Mode, while we're looking for the markets to move higher into Mid January and set up the next move lower - I'm starting to get more cautious.
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
2013 Potential Key Reversal Dates: 1/16/13, 1/29. These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.
While we are looking for a top on or around 1/16, the market is setting up for a potential move lower. Be cautious.
What's even more important here, is if the market can push higher into mid Jan, then it will set up a test lower into month end, which may actually set up a continuation of the advance higher.
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.
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.
As a subscriber to ANY Stock Barometer Newsletter, you also get access to all our charts and research.
Daily Stock Market Outlook
We remain in Buy Mode, expecting the markets to rally into Mid January.
I am starting to lean cautious here and a sell off would invert this call and be in line with our 2013 forecast as shown Monday.
The above chart shows the equity put call ratio. In a normal market, price action oscillates with internals ossilates with sentiment. A move lower here is normal. A bottom should come at a relative low.
Here are a few more things to chew on:
Again, we're getting more bearish, but remain long. If bonds test and break lows, stocks will rally into the 1/16 date. However, if prices close into the gap, below current price action, we'll likely move into sell mode, and recommend covered calls in our CCA, as well as put recommendations in our stock options speculator. We're also fully long 5 stocks in our ESA from last year, all with gains, most with nice gains - I expect some stop action to take the weaker ones out...
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Here's our current positioning.
• Last Recommendation - 11/19 long at open at 62.97
• Status - As with any new positions, this is where risk management is critical.
• Consideration - Always maintain stops per money management above. Once you have established a gain in a position, there is nothing wrong with taking some profits early...
If you want to learn more about some of my models and indicators, I use my blog to cover them in more detail. If you're looking for more information, please visit our blog - I'll have updates and publish other articles there. http://investmentresearchgroup.com/Blog/