Know When To Hold Em - Are You Listening?
Don't fold 'em now. Hold them cards until you see the bull blink. As I said last week, when we saw the markets hold steady and rally after the London bombings of July 7, the support bottom was in and that was our clue that the markets would surprise the bears and go into rally mode. This week I have received several emails claiming that the top was in and that our buy signal was totally incorrect. Here we are, 3% higher on the Nasdaq 100 and with a system gain of approximately 6% for the week. And the biased sentiment of the contrarians just gets more bearish as the markets go up. The beauty of our trend timing system is that it profits based on market moves, not market opinions.
Of course, all good things must come to and end, but the S&P 500 may just be starting its breakout summer rally. Thursday's high of SPX at 1233 took out the March 7 high of 1229 and is a 4 year high. The bears will claim this is either a double top or some other arcane form of wave terminal bifurcation point. For the bulls, they are telling us that this is just a starting point from which the markets move higher as the bears cover their shorts. Technical buying will now move into stocks from bonds and also from the hoards of cash sitting on the sidelines. Volume has not been heavy. We may see volume increase in coming days as the bulls buy everything in sight and the bears sell everything they can to them. Market forces are positioning for a significant struggle as we get some big tech earnings next week.
Medium-term technical indicators are turning positive. We are in a quadrant 2 market moving quickly into quadrant 3 where we will see the MACD histogram continue to lengthen and eventually peak out. The Nasdaq Composite and Nasdaq-100 50 day moving averages are now above their 200 day moving averages signaling a buy signal for technology and the broader markets. Software Holders (SWH), Semiconductor Holders (SMH), and other technology has relative strength and is higher. The Retail Sales index ($RLX) has moved higher. In general, there seems to be room to move higher on most indexes before we get an inevitable rollover.
The sentiment indicators VIX and CBOE Put/Call ratio are at very low levels. We are in full-blown greed mode. But for how long? The lows on the VIX are not necessarily indicative that a top is in the market. Past assessment of new VIX lows seems to indicate that we must wait for the VIX moving averages to turn up before downward momentum begins in earnest. Picking tops based on VIX lows can be a losing game. The VIX can go lower!
Another thought; Perhaps we are seeing an early "year-end" rally. If this is true, then this might not bode well for stocks in the September-December time frame. Will we have a bad hurricane season? Does that portend a colder winter and higher oil prices? Wait and listen.
Our Trading System - What The Numbers Are Telling Us
This week's trend system chart has been expanded to include a CCI(12) indicator and we have shortened the parameter in the MACD Histogram to (12, 26, 8) to give us a little better indication of the "turn" at the top. These parameters are too fast if we are in a new bull market, but the high SPX/VIX ratio tells us that we are closer to a top than a bottom. This justifies our using shorter-term and faster indicators to lock in our profit when the top is in and get us to move quickly to the short side.
Our BUY signal is still in place and is likely good for another week. We need to hold our cards and place our bets on the long side. Our charts and recent good economic news will support our bullish approach for another week or two. However, we will watch the CCI closely and when it and StochRSI begin to turn down, we will take some chips off of the table. The name of the game is to RETAIN PROFITS.
NDX - Expanded 6 Month Chart Model - Friday July 15, 2005
What Is The Current Sentiment?
The Nasdaq Composite ($Compq) has been stronger recently relative to the Nasdaq 100 ($NDX). But that is changing as the NDX is catching up and had a better week than the Composite. This week both the Comp and NDX 100 moved upward relative to the S&P 500. This relative strength in the technology issues supports our buy signal.
3 year Weekly NDX / SPX Relative Strength Ratio
Weekly 2 year VIX Volatility Index
This VIX chart above must be worrying the bulls. We have made new VIX lows. And, of course, the SPX/VIX ratio is at new highs at 118. We have never been greedier. We need to watch the VIX. We must to remain at these levels or lower to sustain the current rally.
Sentiment appears to be strongly in the bullish greed direction. It would be a mistake here to try and predict a top based on a low VIX and CBOE P/C ratio. Economic data has been good. For now, the economic picture is fairly clear even if it is not wildly positive. That clarity is good for stocks. This could change as we get into earnings season. Oil seems to be stabilizing. If we get another significant rally next week, there could be lots of follow-on buying to support stock prices.
The following chart is the Bullish Percent Index on the Nasdaq Composite. We have broken the October levels and appear to be breaking out into new bullishness.
1 Year Bullish Percent Index on Nasdaq Composite
Where Do We Go From Here and How To Listen For the Next Signal?
Our subscribers were informed to hold to the buy signal before the close on Friday. We will remain in buy signal mode until the market tells us that we are wrong. When we know we are wrong, we must go to cash quickly. We have raised our stop to the low of this last week (NDX = 1535). Exit to cash on a daily close of NDX below 1535.
Market Listener Trend Timing Summary
Current Signal: 100% BUY (Bought RYVYX Rydex Velocity
Conservative Investors: You may want to decrease your RYVYX holdings and move partially to cash as we see more gains on the NDX.
Fault Tolerant Cash Safety Stop (FTCSS): Raise the Cash STOP to 1535 on NDX. Exit the long RYVYX position and go to the safety of cash on a daily close of the NDX below 1535. This stop is the low for the week of July 11. Any NDX weakness which breaks below that point could accelerate downward. We will raise stops if the rally continues.
An email will be sent to subscribers if there is a mid-week update.
The Market has a new trend direction. Are you listening and following?
The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX approx. +23.9% as of July 15 Close)
|Week Ending|| Slo. Stoch.
|July 15, 2005||Buy||Buy||Sell||Buy||Buy|
|July 8, 2005||Sell||Sell||Buy||Buy||Buy|
|June 24, 2005||Sell||Sell||Sell||Buy-||Cash|
|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|
Listen To What He Says
NAB Joshua 1:8,9 "This book of the law shall not depart from your mouth, but you shall meditate on it day and night, so that you may be careful to do according to all that is written in it; for then you will make your way prosperous, and then you will have success. Have I not commanded you? Be strong and courageous! Do not tremble or be dismayed, for the LORD your God is with you wherever you go."
I am working on the art of listening and hope that you are also.
Wishing you all the profit you can handle,