Critical Week

By: Stock Barometer | Mon, Sep 25, 2006
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The action this week will set up the holding time of our current position.

WEEKLY WRAP-UP

Dear Speculators,

First and foremost, if you're not already a subscriber and interested in learning more, feel free to click here for a free trial to Dynamic Trading. We offer a variety of services so you can trade our signals with Rydex, QQQQ and Options. We also offer discounted pricing if you don't care to read our daily analysis of the market and just want to receive our signals - to make the most efficient use of your time.

As with any system, the less you can trade and the more profits you can achieve, the more efficient the system is. That's always the battle - even of the system trader - whose goal is to design a system to pull the most profit from the least action. But the action is as key as the system's ability to profit from it.

As the market moves lower, there are short and mid term moves. The short term moves last 3 to 5 days and reverse. The mid term moves last roughly 5 to 11 days. Plus there will be times in between when the market isn't doing much. Consolidation (on a daily chart) means that this system will not perform well.

To perform well during a consolidation period, you need to drop your time frame down to a 60 minute chart or less. However, that short of a time frame will increase the trading activity. And for that, you need to be able to trade during the day - or at the close or open of each and every interval. Since we use a daily approach, and act at the open when we get/approach a signal, this system can be followed by anyone.

Getting back to our system, our entry points will determine out ability to take risk later on in a trade to hold on for a mid term move. A poor system entry point and we'll likely have to act differently than had we had a good entry point. It's important to note that the system determines the entry points and exit points, but as with any system, there are rules that are designed to, as I like to say, minimize activity and maximize profits.

Since Dynamic Trading remains on a SELL SIGNAL, we're looking to a point in time to close our bearish positions and enter our bullish positions. We had a great entry on this last signal - timing the top almost as good as you can. That top got retested as we were looking for and now we're analyzing our charts for how long the selling will last.

The first chart below takes a look at one of the Dynamic Trading Oscillators. These are short term oscillators tuned to time the short term action of the market and are the basis of our system. However, the following charts, as we look at every week, are longer term focused, so we can decide the next question - how long to remain in this trade before going long. As you'll find with any of my services, I don't spend any time looking at what the market did - I focus on what the market is going to do.

Of course, if you have any additional questions, please feel free to email me at jay@stockbarometer.com.


Dynamic Trading Signals are based on a series of Oscillators tuned to the short and intermediate term movement of the market. Our goal is to be in the market at all times and switch from bearish to bullish positions in line with the markets movements.

DYNAMIC TRADING OSCILLATOR

Discussion: All signals are in sell mode here as we saw weakness on Friday that should continue to some extent this week. One or two good days of selling will put us in position to lock in gains and position for a bounce.


10/20/40 WEEK CYCLE

The following chart shows our 10/20/40 week cycles. The 40 week is also referred to as the 9-month cycle. Cycles are not short term tools for determining precise entry and exit points, they're primarily used for intermediate or longer term positioning and forecasting.

INVESTOR'S INTELLIGENCE BULL BEAR SPREAD

Each week, Investor's Intelligence polls a number of newsletter writers. The poll results in a number of bullish advisors and a number of bearish advisors. The difference between those two numbers produces the following chart. It's believed, that when a majority of newsletter writers (like us) are bullish, that the market is near a top, and vice versa. I'm also under the belief that the direction of this line is as critical as the number.

EQUITY INDEX OPTION VOLUME RATIO

The market is all about risk, and there are two primary classes of participants in the market, the individual investors and the institutions. Individuals primarily trade equity options and institutions primarily trade index options. So the relationship between the two gives us an idea of how much risk the individual is willing to take on. At tops, the individual tends to take on too much risk, making this indicator rise. At bottoms, the individual is usually washed out of the market, making this indicator fall.

QQQQ v. SPY RELATIVE STRENGTH

Risk tells us a lot about the market. This indicator looks at risk from another perspective. When market participants overall increase their willingness to take on risk, it's bullish for the market. That risk shift is shown on the above chart as a shift in relative strength from the Nasdaq to the NYSE. Note when we refer to Nasdaq, we're primarily looking at the QQQQ - since that's the focus of our service. And when we say NYSE, we look at the SPY.

MONEY FLOW

This indicator looks at the flow of money in and out of various investment vehicles. For the most part, when money flow reaches an extreme, in either buying or selling, the market is at a top or a bottom, respectively.


NDX CHART


In summary:

We remain on a Sell Signal looking for the market to make a sharp move lower this week.

As an FYI, we show the same 5 charts here each week so we can better learn their behavior over the course of time. And over time, we'll learn more from these indicators and incorporate them more into our forecasting. I've been doing this long enough to know that you don't learn anything all at once, the best learning is done by following something over an extended period of time. In as little as 15 minutes a day, you can master anything. Give me just 15 minutes and we'll learn to read this dynamic market together.

 


 

Stock Barometer

Author: Stock Barometer

www.stockbarometer.com

Stock Barometer is completely independent. We have never and will not ever accept compensation from any company whose stock we recommend.

Our goal is to make you money. We offer you the tools and information to do so and leave it to you, the individual investor, to apply them in the best way possible.

Important Disclosure: Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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