Long Term Trend - Are You Listening?
The markets sold down in a rather light volume trading week. The SPX was off 1.2% and the NDX lost 0.95%. The technology sector was not hit as hard as broader industries which were more vulnerable to the steady-to-higher oil prices. Let's get right to the technical indicators.
TECHNICALS: The SPX could test the 1200 level next week and possibly find some limited support there. However, let's take a look at the bigger picture by going back to mid-2002 using a monthly chart. Here we find that the 15 month EMA has been providing support since June 2003. That support sits at 1168 today. A significant break below that long term up-trend EMA could change the big picture. The MACD/Price divergence is looking extremely bearish.
3 Year Monthly Chart - S&P 500 Index
The Nasdaq 100 (NDX) is looking for some support at 1550. This level has been a source of support and resistance for all of 2005. This week we hit a low of 1552 in the NDX. A break below this level next week could mean that we might be going down to 1480-1500. Anything below 1480 should take us back down to the 1400 level which was tested in late April.
1 Year Daily Chart - Nasdaq 100 ($NDX)
The Retail Index ($RLX) is moving down with the rest of the market. The Durable Goods number this week was likewise disappointing and may be restraining institutional buying. The University of Michigan Consumer Sentiment came in at 89.1 down from July's 96.5. The consumer is struggling as we all know only too well.
There are two interesting "attitudes" of this market which have developed in recent weeks.
First, the VIX and CPC (put/call ratio) have been in a very consistent uptrend without the market selling off in any dramatic fashion. Since there have not been any real fear "spikes" in the VIX as we saw back in early July and mid-April, this move is beginning to appear to be a solid and longer term harbinger of a change in market attitude and price level. A readjustment of the greed mentality may be taking place.
Secondly, the markets seem to be drifting lower since the first of August as oil prices ($WTIC) drifted above $60 and floated even higher. It appears that my premise in the Aug 19 report of the supply/demand equation at work is winding its way into the broader market. Again, an attitude adjustment seems to be taking place which is implying that the markets are re-valuing everything because the rising oil prices appear to be here for the long term.
Our model is making money for us because the markets are acting rationally without extremely volatile movements. I would be more concerned about a rally if we had sold off dramatically this week, but we did not. Volume was light.
Next week should also be a low volume week as we head into the long Labor Day weekend. (Monday Sep 5 - Markets will be closed). There is a load of economic news next week including GDP and payrolls numbers. It could be a very crazy and volatile week. Remain cautious and protect your profits!!!! But remember, we are on the correct side of this market with our SELL signal for now. There could be more profit ahead for us on the downside.
Another possible reason for the sell-down is that we are coming up on the 4 year anniversary of Sept. 11th. Are the markets worried that Al-Qaeda could be ready for another event on U.S. territory? A similar run-up in the VIX and sell-down in the markets occurred before 9/11/2001. Does somebody know something? Probably not, but the markets are being unusually cautious.
RISK ASSESSMENT: The downside market risk (probability of a sell-off) is dominated by geo-politics, oil and the vulnerable consumer. There is very little risk to our sell signal on the upside (low probability of a huge rally). We are pretty safe here with a Sell signal and a close cash stop but there is an increasing likelihood that the market will get a bounce from here, within the short-term down-trend.
Our Trading System - What The Numbers Are Telling Us
Our SELL signal is paying off. The NDX was down 0.95% and that gives us a +2% gain on the week using Rydex RYVNX. The daily NDX chart shows that we are in an oversold condition. Next week we will see if the selling continues or if we get a technical bounce. The market has come a long way since mid-May and might need to lose some ground if we are to go higher.
Our chart model indicators on the NDX are now all in "sell" mode.
This week we have revised our chart model and some parameters, lengthening the parameters on ROC to 13-16 and adding Wilder's ADX to give us some indication of the strength of any trend. We can see that the ADX is at 24 and falling. The DI+ line is moving down and looks to be about to crossover the DI- line in the next 2 weeks if a rally does not materialize.
The Parabolic SAR has switched to sell on the weekly chart for the NDX this week (chart below). On a similar chart of the SPX, the SAR switched to Sell two weeks ago. The slow stochastic is just below the 80 level and needs to move below 20 if this selling is to complete a full cycle pattern on the weekly basis chart. In early 2005 it took 4 months of selling to move the stochastic from 80 to 20 to get to the oversold condition. That kind of selling would take us into the end of the year.
NDX - Revised 1 Year Chart Model - Friday August 26, 2005
What About Bonds? The ten-year note yield nudged up a couple of basis points on the week. The two week downturn in yields is not yet broken. It's time once again to remind ourselves just how close we are to an inverted yield curve. Wow,... just a smidgen to go!
10 Year Note Yield / 3 Month T-Bill Yield
What About Gold? - Gold mining stocks ($HUI, $XAU, NEM) dropped again this week. We got stopped out of NEM on Wednesday (stop was at 39.40). HUI dipped to the 200 magic number and recovered to 203.49 by the close on Friday losing 2.67% on the week. The golden metal held it own, closing even for the week. We are now neutral on the gold miners until they find some relative strength.
What Is The Current Market Sentiment?
This VIX and the CBOE Total Put/Call ratio were up on the week. The VIX is making a steady climb higher, but is not yet at rally-starting levels.
1 Year Weekly VIX
The CPC chart below however, shows the 9 week EMA at levels not seen since the May rally began. These levels on the CPC are higher than what we saw at the start of the August 2004 rally. This could be a cautionary note for those of us who are short the market. Our sell signal could be reversed in the next week or two just based on our observations of the CPC. We need to listen carefully to this leading indicator.
14 Month - Weekly CBOE Total Put/Call Ratio
Where Do We Go From Here and How To Listen For the Next Signal?
The daily charts are in oversold condition with the slow stochastic below 20 indicating that we are due for at least a slight bounce unless this is the start of a big sell-off.
Our Fault Tolerant Cash Safety Stop (FTCSS) was set last week at 1606 on the NDX. Due to the increasing volatility, we are going to have to leave our stop set right at that point.
Market Listener Trend Timing Signal Summary
Current Signal: 100% SELL (Bought RYVNX Rydex Venture 100 Fund)
Subscribers were advised by email of the SELL signal before the close on Monday Aug. 8.
Fault Tolerant Cash Safety Stop - For the Week of August 29, admit failure and exit to cash (RYMXX) on a daily close of NDX above 1606. Conservative investors might want to reduce their positions next week in expectation of a bounce. Re-enter on selling below current levels.
We will issue an email to subscribers next week if we get an exit signal or have a mid-week update necessary to change the FTCSS level.
The Market is whispering quietly. Are you listening?
The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX approx. +33.9 % as of Aug. 26 Close)
|Week Ending||Slo. Stoch.
|ML Signal 1|
|Aug 26, 2005||Sell||Sell||Sell||Sell||Sell|
|Aug 19, 2005||Sell||Sell||Buy||Sell||Sell|
|Aug 12, 2005||Buy-||Buy||Neutral||Sell||Sell|
|Apr 08, 2005
|Aug 04, 2005||Buy||Buy||Buy||Buy||Cash|
|July 29, 2005||Buy||Buy||Buy||Buy||Buy|
|July 22, 2005||Buy||Buy||Buy||Buy||Buy|
|July 15, 2005||Buy||Buy||Sell||Buy||Buy|
|July 08, 2005||Sell||Buy||Buy||Buy||Buy|
|July 01, 2005||Sell||Sell||Sell||Buy-||Cash|
|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|
Listen To What He Says
NAB Jeremiah 29:8-14 "For thus says the LORD of hosts, the God of Israel, 'Do not let your prophets who are in your midst and your diviners deceive you, and do not listen to the dreams which they dream. 'For they prophesy falsely to you in My name; I have not sent them,' declares the LORD. For thus says the LORD, 'When seventy years have been completed for Babylon, I will visit you and fulfill My good word to you, to bring you back to this place. For I know the plans that I have for you,' declares the LORD, 'plans for welfare and not for calamity to give you a future and a hope. 'Then you will call upon Me and come and pray to Me, and I will listen to you. 'You will seek Me and find Me when you search for Me with all your heart. 'I will be found by you,' declares the LORD, 'and I will restore your fortunes and will gather you from all the nations and from all the places where I have driven you,' declares the LORD, 'and I will bring you back to the place from where I sent you into exile.'
I am working on the art of listening and hope that you are also.