Head And Shoulders
5/4/2014 8:05:27 AM
The Week Ahead
Good Morning Traders,
If you live under a rock, you may have missed the head and shoulders pattern playing out on the QQQs. It leads to the question, is it that easy? Let's look through our charts and see if we can answer the question.
Stock Barometer Analysis
The barometer is in Buy Mode. We have a slight gain in this position. The key is what happens from here. The right shoulder is about a dollar lower than the left, but continues the downtrend from the peak in March. On the bearish side, you could consider this bounce a b-wave, but since it's bounced to the 62% retracement level, that suggests the lows will hold. Friday's bearish engulfing is also a negative. But the excessive bearishness is a vote to the bullish side.
The Stock Barometer is our 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. We'll target the next key reversal date for timing. 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 QQQ if you're trading leveraged funds and options with our trading service).
Potential Cycle Key Reversal Dates
2014 Potential Key Reversal Dates: 1/15, 1/21, 2/5, 2/16, 3/20, 4/10, 4/26, 5/6, 6/18, 6/23, 7/16... These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.
5/6 is our next focus date, as the model shows a large move from 5/6 to 7/16, with a few minor dates in between. (Refer to our Nyse data base chart F14b, which shows our model for 2014.)
2013 Potential Key Reversal Dates: 1/16/13, 1/29, 2/14, 3/6, 3/15, 3/28, 4/5, 4/25, 5/13, 5/30, 7/19, 8/20, 8/29, 10/4, 11/3, 12/30. These dates have an accuracy of +/- 2 days. We publish dates up to 2 months in advance.
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. Our 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 QQQ, 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 QQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us a big picture idea of the next turn in the market relative to the barometer signal.
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.
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. The dollar direction can have an impact on the market and multinational companies - as the dollar goes up, it lowers the earnings for multinationals and can weaken the stock market and more so the Nasdaq.
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. Want to trade gold options - try our Gold Options Trader service at www.stockbarometer.com - trials are only $1.
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. Want to trade OIL (USO) options - try our OIL Options Trader service at www.stockbarometer.com - trials are only $1.
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 WHEN you should BUY or SELL the market. We feature at least one here in support of our current outlook.
Daily Stock Market Outlook
We remain long, looking for the markets to rally and negate the head and shoulders pattern (since volume isn't confirming). I would also look to bonds to reverse lower and rates increasing, which will be bullish for stocks and can result in a rally lasting into July. That's the bullish view. Obviously if the markets turn lower and complacency builds, then we would have the opposite scenario and will reverse our position accordingly.
The above chart of the equity put call ratio shows the big bet to the downside taking place. The Vix options data we showed last week shows a huge bet to the downside on the vix, which is also bullish.
Internals are neutral here, which may mean we see some early move lower to start the week and a hammer like day like we had last Monday, where it looked pretty grim to start the day, and ended up.
Here's our current positioning.
Last Recommendation - 4/21/14 Long QQQ @ 86.41. (Previous trades - 4/2/14 Buy QQQ @ 89.59 - stopped out 4/4/10. 1/24/14 Short QQQ at Open @ 88.06 - closed on 4//14 at 89.59. 12/12/13 - Short QQQ @ 85.24 - Stopped out 12/23/13 @ 87.41. 11/25 In cash. 11/8/ Short QQQ @ 82.54 closed at $84.29 on 11/25. 8/23 Long QQQ @ 76.73 closed on 11/8 @ 81.73, 8/16 Short QQQ @ 75.54 (closed on 8/23 at 76.63) 7/22/13 - Short QQQ @ 74.87 (stopped out) - 5/23/13 Short QQQ @ 72.95 (stopped out) - 3/5 Long QQQ @ 68.10, 5/23 closed at 72.95, 2/5 Short QQQ @ 67, 11/19 long at open at 62.97 closed 2/5 @ 67)
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