Big Move Safari - Are You Listening?

By: Greg Miller | Sun, Jun 19, 2005
Print Email

Opening Whisper

When and where will we see these quiet markets begin to move again? I am not necessarily getting impatient mind you, because I know that we can profit from mildly oscillating markets. But I am looking for those larger trending moves which can be very profitable as we trade at beta 2.0. It must be somewhat like being on a safari. We proceed with caution, stalking our prey, evaluating the landscape, and keeping our eyes peeled for signs of life. And in listening carefully to the markets daily noise, we might see through our filters, something of a pattern that tells us that we are getting close to that big bull or bear. A real 12 to 15 pointer would be nice. Bag him. It would be a great catch.

I believe it was at a workshop by the legendary trader Larry Williams where he said, "Small range days eventually become large range days and large range days eventually become small range days". He was speaking of the cyclic nature of the futures markets, but the same applies to all markets in general. Quiet periods give way to hectic periods. Low volatility evolves to higher volatilities. Lackluster volume becomes heavy duty volume. We can expect things to change. It was Solomon that wrote: "To every thing there is a season, and a time to every purpose under the heaven,... a time to break down and a time to build up". The season for a big move is coming eventually. We need to be ready.

The equity markets have been relatively quiet since early 2004. Next week we will take a closer look at the evidence for a larger move this summer and what we might see in the October to December time frame. Could we get two big moves yet this year? How about new highs on the Dow Industrials before the summer is over? Then maybe a sell-off to 8000 - 8800 as we get closer to 2006 earnings reporting period. Buy in May, sell in September?

Oil is at all-time highs. The University of Michigan Consumer Confidence number for May rose dramatically, probably due to lower oil. Recent oil price increases may dampen consumer confidence when we see June's numbers next month. Manufacturing slowed in some sectors in May as witnessed by the Philadelphia Fed report. PPI and CPI were tame. The current account deficit increased dramatically. The dollar index has relented late in the week and commodities are on the move again, including gold. Next week's light economic calendar bodes well for the bulls.

The S&P 500 and NDX-100 held at support and moved higher this week. If this week has truly been our "critical point of order" as mentioned in last week's report, then the verdict is in, we passed the test and we should be in buying mode. The summer rally is apparently not over yet. If you have any question about this, look at the daily or weekly chart of the $SPX. The S&P 500 index is leading the bullish case into the summer.

Our Trading System - What The Numbers Are Telling Us

Our system model has recovered the buy signals on the faster indicators. The weekly MACD has strengthened again this week. The system model chart is telling us not to worry about going to cash, but to buy. The fast MACD's on a daily chart of the NDX are curling up as well.


NDX - 6 month Chart Model - Friday June 17, 2005

Our buy signal was out of sync with the market last week, but has gotten back in sync again this week. Sentiment is not at extremes, SPX is overbought on the daily stochastics, NDX is coming out of oversold.

What Is The Current Sentiment?

The NDX/SPX ratio is revealing weakness in Nasdaq technology. This does not mean that the NDX will not see some more gains this summer, but the broader market is out-performing the Nasdaq for the last couple of weeks. It may be telling us that the summer rally may be limited in scope without the necessary tech leadership. Technology needs to find its legs.


3 year Weekly Semiconductor / NDX Relative Strength Ratio

The CBOE Put/Call Ratio (symbol $CPC) and Nasdaq Summation index ($NASI) charts are still bullish on this week's charts. (No charts shown)

The next chart is a look at the relative strength between the Broker Dealer Index (XBD) and the NDX 100. We see that in mid-May of this year there was a downward spike in the ratio which has since recovered sharply. Is this a buy signal? Similar signals may have been given in March 2003 and early July 2004.


3 Year Weekly $XBD / $NDX Relative Strength

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

Our weekly MACD buy signal has strengthened. The daily stochastic on the NDX has started to turn up above the 20 level indicating a short term buy. I believe that we should set a very tight stop here. Let's use a point just above the lower Bollinger Band at 1520. The market must move up with our MACD signal next week, or our signal is again out of sync. By setting a close stop, we can retain profits until we see where the next short term trend will be going.

Market Listener Trend Timing Summary
Current Signal: 100% BUY (Bought RYVYX Velocity 100)
Conservative investors who are partially in cash may want to begin to re-enter their BUY positions by buying RYVYX Velocity 100 over the next few trading days.

Exit (Stop) Signal for Week of June 20 (fixed stop): Go to 100% CASH on NDX Daily Close below 1520 (which is just above the lower Bollinger Band).

The Market is whispering... Summer Rally! Are you listening?

The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX = +23.21% as of June 17 Close)

Week Ending  Slo. Stoch.   StochRSI   ROC   MACD   ML Signal1 
June 17, 2005 Buy Buy Buy Buy Buy
June 10, 2005 Buy Sell Buy Buy Buy
June 03, 2005 Buy Buy Buy Buy Buy
May 27, 2005 Buy Buy Buy Sell++ Buy
May 20, 2005 Buy Buy Buy Sell++ Buy
May 13, 2005 Buy Buy Buy Sell++ Buy
May 06, 2005 Buy Buy Buy Sell+ CASH
Apr 29, 2005 Sell Sell Sell Sell Sell
Apr 22, 2005 Sell Sell Sell Sell Sell
Apr 15, 2005 Sell Sell Sell Sell Sell
Apr 08, 2005 Sell Sell+ Sell Sell Sell
Apr 01, 2005 Sell Sell Sell Sell Sell
Mar 24, 2005 Sell Sell Sell Sell Sell
Mar 18, 2005 Sell Sell Sell Sell Sell
Mar 11, 2005 Sell Sell Sell Sell Sell
Mar 04, 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 Sell Buy- Sell
Jan 14, 2005 Sell Sell Sell Buy Sell
Jan 07, 2005 Buy Sell Sell Buy Sell
Dec 31, 2004 Buy Buy Sell Buy 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 Buy Sell+ Buy
1 This Market Listener signal is our base signal. The MACD is our primary weekly input, but can be "out-voted" by the other faster indicators on a daily basis when we need to go to cash to implement our Cash Safety Stop (CSS). You should not base your trading on this or any other single indicator. With Rydex Dynamic funds, we can trade in the morning and 5 minutes prior to the close during the trading day/week when I see that one or more of the fast 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 end-of-week, WEEKLY SYSTEM MODEL SIGNALS.

Listen To What He Says

KJV Ecclesiastes 3:1
"To every thing there is a season, and a time to every purpose under the heaven: A time to be born, and a time to die; a time to plant, and a time to pluck up that which is planted; A time to kill, and a time to heal; a time to break down, and a time to build up; A time to weep, and a time to laugh; a time to mourn, and a time to dance; A time to cast away stones, and a time to gather stones together; a time to embrace, and a time to refrain from embracing; A time to get, and a time to lose; a time to keep, and a time to cast away; A time to rend, and a time to sew; a time to keep silence, and a time to speak; A time to love, and a time to hate; a time of war, and a time of peace."

I am working on the art of listening and hope that you are also.


 

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.

Copyright © 2005-2006 All Rights Reserved by Gregory W. Miller

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com