Uses of Market Timing

By: Stock Barometer | Sun, Apr 8, 2007
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Bi-Weekly Stock Barometer No. 155
4/8/2007 1:08:38 PM

Marketing timing can be used to improve the timing of your stock trading - here are 5 examples.

Welcome to the biweekly stock barometer. This article comes out every 2 weeks and gives our big picture view of the market. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so too can our interpretation as the market gives its daily clues to the future. Or sign up for our free weekly newsletter, where we provide up to date articles from our various trading services. We're also going to be releasing a free trading video in 2007 - so sign up today.

When I first started trading and writing for stock trading services, much of my early work was geared towards developing market timing indicators to improve the timing of my own investments.

The third stock trading service that I wrote for was called "Samurai Stock Trader". It primarily used Japanese Candlesticks to enter and exit trades. The use of candles is a great trading tool. But it's just that - one of many tools that you should have in your arsenal.

The problem with Japanese Candlesticks - is that there are a lot of times the candles are meaningless. You may get several bullish engulfings in a longer term down trend. To counter this, I developed the stock barometer to better know when to follow these candlestick signals. It wasn't until I was publishing the barometer for a while that I actually incorporated it into trading indices.

But I still use it as a tool to improve the timing of my stock recommendations.

Early in March, we issued 5 stock recommendations following a barometer signal. The 5 positions are up a total of 51.1%. Here is an article below from my stock trading service that reviews the status of these positions. This service is available right now at the low price of 9.95 per month or $95/year, which won't last long as we're looking at revamping these 5 services into 2 services - one focused on trading and the other focused on investing.

If you subscribe now, you'll get the benefit of the lower price as long as you remain subscribed, regardless of what the new services are priced at:

Click here to learn more and subscribe (use pointed link to subscribe page)

In early March, we had a barometer buy signal that we translated to our stock trading services. Here's the update article:

Our 5 March recommendations are doing well - here's a summary of where they are.

An important thing to note with these recommendations is that we are using a longer term weekly trending strategy - meaning that we're not looking to exit on +/- 20% profits - we're looking for much larger gains. That doesn't mean if you're satisfied with the current profits that you can't take them - I just need you to understand that we're looking for more profits, so we'll likely have to sit through another consolidation.

There's something I call the rule of 5 that I discuss in my teachings. All it basically means is that if you make 5 recommendations, 2 will do well, 2 will do poorly and 1 will do nothing. The use of stops will get you out of the 2 that do poorly. You will need to eventually close the 1 that does nothing and reposition that capital in another position. And the 2 that do well, well, you also need to have a plan to get out of those. Our plan is to - on a weekly basis - let the ones that do well run as far as they can. The likelihood of getting 2 large wins (+50%) out of 5 trades decreases. Also note that we may give up these short term gains to see if we have a big winner. Stay with me through this process and you'll see how it plays out.

These charts arrow the entry day- and we use the open price as our entry price. The nice thing about CNE is that it is paying a 14.5% dividend. I would have no problem if that dividend drops in relationship to stock price, since that would mean the stock price has increased. The best thing about trading dividend stocks is that they pay you while you hold on to them. Sort of a double bonus...

Stock trading is both science and art - the ability to recognize good trades takes hard work and much practice. There is no secret to trading in the market - just hard work and lots of learning - about yourself and about the market. Learning about yourself is critical to understanding what and how you should trade.

TECH is our worst performer, especially since it dropped shortly after we entered it. I actually received an email on the day it reversed - right before it reversed higher, complaining about the pick. It's amazing to me how emotions interact with trading - getting a negative email just when this stock was about to move higher.

Of course the next question is how high will our current picks go? A lot of that will depend on the market. Also note that 2 have thrusted sharply higher and are due for a pull back. Sometimes pullbacks set up the next advance and sometimes that pull back is the initiation of a top and a reversal lower. We'll monitor these picks, get out of picks when they underperform and make new recommendations as we see fit.

Let me know if you have any questions and I'll address them in future updates.

Regards,

Jay DeVincentis, Editor

Message From The Markets

Market action is ruled by sentiment and by monitoring market internals and studying sentiment; you can gain reasonably predict future market movements. The basis of the Stock Barometer system is overlaying extremes in sentiment with sound technical analysis to predict the likelihood of future price movement. Each indicator and chart measures the hope, fear and greed of investors and traders from different angles. Follow along with my charts and over time, you'll also learn to understand how to read the markets, which is essential prior to setting up each and every trade.

STOCK BAROMETER CHART

The Daily Stock Barometer is a proprietary measure of market energy. The direction of the stock barometer determines our short-term outlook on the market's direction. A BUY or SELL signal is triggered when the indicator clearly changes direction. If the line is moving up, we are in BUY MODE and if it's moving down, we are in SELL MODE. The black line is a 5-day moving average that we use to confirm changes in direction.

EQUITY PUT CALL RATIO CHART

The CBOE put/call ratio is comprised of two sets of data; equity options and index options. The index component contains items that are used as a hedge, thereby distorting the correlation and interpretation of the indicator. I use the equity put/call ratio. This is one of the most accurate read of investor's fear and complacency.

TRIN/ARMS CHART

Richard Arms developed the arms index. It is also referred to the Trading Index or TRIN for short. It is a measure of the ratio of up stocks and down stocks divided by the ratio of up volume and down volume. Our Spread Chart converts the arms index data into momentum Buy and Sell Signals.

TICK CHART

The tick index is represents the sum of all stocks ticking higher minus all stocks ticking lower (a stock is said to be trading on an up tick when it trades at a higher price than the last sale). It's utilized as a day trading tool as it gives you an up to the second read of the intensity of buying and selling.

BREADTH (ADVANCE - DECLINE) CHART

Each day several thousand stocks either advance, decline or remain unchanged. The number of advances and declines normally ranges from +2500 to -2500. A high number of advancing stocks normally marks a top just as a high number of declining stocks normally marks a bottom. Monitoring the 5 and 13-day moving averages of this allows us to better predict future prices.

VXO CHART

The VIX is a measure of volatility on options pricing. We use the old VIX, which is now called the VXO. The higher the volatility, the more likely the market is close to a bottom, as traders are willing to pay more premium for puts, which act as Insurance on their long positions.

Cycle Time

Monday will be day 1 in our up cycle.

The Stock Barometer signals tend to follow a 5, 8 and 13 and sometimes 21 day Fibonacci cycle that balance with 'normal' market cycles. Knowing where you are in the current market cycle is important in deciding how long you expect to maintain a position.

Potential Cycle Reversal Dates

2007 Potential Reversal Dates: 1/10, 1/14, 1/27, 1/31, 2/3, 2/17, 3/10, 3/24, 4/21, 5/6. We publish these dates up to 2 months in advance.

The latest action in the market has me looking at 4/21 as a top.

My timing work is based on numerous cycles and has resulted in the above potential reversal dates. They're predictive and have nothing to do with the barometer cycle times. However, due to their accuracy in the past, I post the dates here.

2006 potential reversal dates: 1/16, 1/30, 2/25, 3/19, 4/8, 5/8, 5/19, 6/6(20), 7/24, 8/20, 8/29, 9/15, 10/11, 11/28.2005 Potential reversal dates based on 'other' cycle work were 12/27/04, 1/25/05, 2/16, 3/4, 3/14, 3/29, 4/5, 4/19, 5/2, 6/3, 6/10, 7/13, 7/28, 8/12, 8/30-31, 9/22, 10/4, 11/15, 11/20, 12/16.

Stock Barometer Buy And Sell Signals

QQQQ or SPY Chart: A chart is provided in every bi-weekly report and shows the barometer Buy and Sell Signals (which are provided in my morning updates) as well as showing the next highlighted 'reversal' window. The numbers adjacent to the buy and sell signals are the number of days between signal (cycle time).

Here's one years of our end-of-day buy and sell signals for the Stock Barometer over the past year. They're marked on the QQQQ chart with red and blue lines (or red and blue arrows). Note we recently changed bottom and top to read buy and sell.

 

4/05

BUY (7 days)

 

3/27

SELL (13 Days)

 

3/08

BUY (34 Days)

 

1/18

1/18 SELL (4 Days)

 

1/11

BUY (17 Days)

 

12/22

SELL (6 Days)

 

12/14

BUY (0 days)

 

11/24

SELL (0 days)

 

11/14

EXIT/CLOSE/CASH (9 days)

 

11/01

SELL (18 days)

 

10/26

BUY (18 days)

 

10/2

SELL (4 days)

 

9/26

BUY (14 days)

 

9/6

SELL (15 days)

 

8/15

BUY (4 days)

 

8/9

SELL (12 days)

 

7/24

BUY (10 days)

 

7/10

SELL (29 days)

 

5/26

BUY (33 days)

 

4/10

SELL (8 days)

 

3/29

BUY (6 days)

 

3/21

SELL (5 days)

 

3/14

BUY (10 days)

 

2/28

SELL (8 days)

 

2/15

BUY (23 days)

 

1/12

SELL (6 days)

 

1/04

BUY (31 days)

 

11/29

SELL (28 days)

 

(historical reversal dates and performance figures are published at the bottom of the home page and updated annually)

The following work is based on my price based spread/momentum indicators for the USD$, XAU, GLD and TLT. They are tuned to deliver signals in line with the Stock Barometer. Combined with up/down indicators and you have a powerful tool for pinpointing market reversals.

Gold (GLD:AMEX & INDEX:XAU.X)

I monitor Gold in the form of GLD and the XAU as well as the US Dollar Index as a general guide to the overall health of the US Economy and the markets, as well as to assist us in the entry of positions in our Gold Stock Service.

Bonds (Amex:TLT)

I include bonds in our studies and use Lehman's 20 year ETF, as the direction of bonds can have an inverse impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.

Summary & Outlook

The barometer has issued a Buy Signal, placing us into Buy Mode. The next key reversal date is 4/21, which is about two weeks from today. Given the positioning of the indicators, other than the likelihood of a short term pullback at the beginning of this week, I believe that the market will move higher into 4/21 - which also aligns with Options Expiration.

Again, if you're new to the biweekly stock barometer, welcome. This article comes out every 2 weeks and gives a big picture view of the market and our recent activities. If you're interested in following our signals and learning more about our system, then I invite you to click here and subscribe to the daily service - since the market can turn on a dime and so to can our interpretation as the market gives its daily clues to the future. Or sign up for our free weekly newsletter, where we provide up to date articles from our various trading services. We're also going to be releasing a free trading video in 2007 - so sign up today.

Have a great rest of the weekend.

As always, if you have any questions or comments, feel free to email me here at jay@stockbarometer.com.

Regards,

 


 

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.

Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.

Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.

In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.

For a complete understanding of the risks associated with trading, see our Risk Disclosure.

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