Sunday, November 05, 2006
Wow! Rarely are there moments in market history that set up like this. The battle between the bulls and bears right now is about as historic as the battle this weekend between my 6-1 Patriots and the 7-0 Colts. Like the Pats, the bulls are definitely winning the head to head match up over the past few months with a historically strong uptrend. But this week is a critical match-up.
Maybe it's the NDX's chart pattern that has things so exciting here - a classic consolidation at highs before a historic break out or a scary triple top. Or maybe it's the numerous indicators that we traders follow - some pointing at oversold conditions and some pointing at overbought conditions.
And like the Pats and Colts in a classic Sunday night match-up (which I'll be at), all I can say is this week is one of those weeks where it all comes together, the moment of truth, the rubber meets the road, the game will be played and we'll find out who the winner is, the bulls or the bears.
Of course, we're short and betting on the Bears (not the football team). But we'll take a look at our weekly indicators and figure out where the odds makers are placing their bets.
Of course, if you have any additional questions, please feel free to email me at email@example.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 (except for the Options service, which is subject to greater volatility and time decay). Periodically we will go to cash and await the next system trade.
DYNAMIC TRADING OSCILLATOR
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. The direction of this line is as critical as the level.
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.
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.
Dynamic Trading remains on its current SELL SIGNAL.
We have the elections this Tuesday and the market is simply at one of those points where it could just as easily rally here or break lower. But since our indicators remain pointing lower we remain on a Sell Signal. Our expectations are for the market to bounce slightly here setting up the next move.
17 days sideways. I love these points in the market because it brings out the bulls and bears in full force. The bulls are sure this thing is pausing for another advance and the bears are all set to call a crash. Is the market simply waiting for the election to play out? Will the market rally if Dems win both the house and the senate? Will the market rally on gridlock for two years? Well, that's what they say on TV. And unfortunately what they say on TV is usually not what you get.
Best regards and good trading!