Testing Lower Levels
7/22/2007 9:34:12 AM
Friday's test lower came as a surprise to some, but not to us.
Stock Barometer Analysis
The barometer remains in Sell Mode, Friday's reading sent the daily reading much lower. There are several characteristics of trends - and they all contribute in some way to the barometer. Currently, the increasing fear is bringing the barometer lower. And as you can see, the increasing fear is potentially bullish as it creates potential energy to rally.
The Stock Barometer is my proprietary market timing system. The direction or slope and level of the Stock Barometer determine our outlook on the market's direction. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction. All the information contained in this email is considered in making our calls.
Stock Barometer Cycle Time
Monday is day 4 in our Down cycle.
The Stock Barometer signals follow 5, 8, 13, 21 and sometimes 34 day Fibonacci cycles 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, 6/15, 8/29. We publish these dates up to 2 months in advance.
With our next date at 8/29, we were calling for lower prices into this date to align with our 9 month cycle work.
My Additional timing work is based on numerous cycles and has resulted in the above potential reversal dates. These are not to be confused with the barometer signals or cycle times. However, due to their past accuracy 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, 1/25, 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.
The following work is based on my spread/momentum indicators for the QQQQ, SPY, XAU, GLD and TLT. They are tuned to deliver signals in line with the Stock Barometer and we use them only in determining our overall outlook for the market and for pinpointing market reversals. I provide the spread indicator charts at least weekly and when they deliver reversal signals. The level, direction, and position to the zero line are keys in these indicators. For example, direction determines mode and a buy signal 'above zero' is more bullish than a buy signal 'below zero'.
QQQQ Spread Indicator (NASDAQ:QQQQ)
The QQQQ Spread Indicator moved into Sell Mode, above zero.
The QQQQ and SPY Spread Indicators will yield their own buy and sell signals and may be in Buy and Sell Mode that is different from the Stock Barometer.
Gold Spread Indicator (AMEX:GLD)
The Gold Spread Indicator moved into Buy mode, above zero.
The dollar Spread Indicator remains in Buy Mode, below zero.
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 Spread Indicator (AMEX:TLT)
The Bond Spread Indicator remains in Buy Mode, above zero.
I include bonds in our studies and use Lehman’s 20 year ETF, as the direction of bonds can have an impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.
OIL Spread Indicator (AMEX:USO) *NEW*
The OIL Spread Indicator remains in Buy Mode, above zero.
We look at the price of oil as its level and direction can have an impact on the stock market, which we'll examine over the coming months and years.
Supporting Secondary Indicator
I have over 100 technical indicators, some that are widely followed and some that are proprietary. These indicators break down the market internals, sentiment and money flow and give us unique insight into the market. I feature at least one here each day in support of our current outlook.
Summary of Daily Outlook
We remain in Sell Mode as the market pushed lower and we expect the market to continue lower with the following caveat. There are several indicators that are approaching if not at oversold levels, which surprises me since the market appears to be at a top. That means that the stocks in the market may be correcting, but the big stocks that make up the indices are not. This suggests, believe it or not, that we could see another leg higher. I would prefer to see the market consolidate a bit more before another leg higher, but what I prefer and what the market actually does are usually two things - thus the reason for tightening the system entry parameters on the barometer - which you should now be getting an idea of what that means for us - if you have any questions, please do not hesitate to ask.
On a weekly basis, we have somewhat of a shooting star/gravestone doji - but will need a reversal lower at the end of this week for confirmation.
If you follow our Explosive Stock Alert service, you'll notice that when you initiate trades in topping conditions, they will not perform as well as when you initiate them in bottoming conditions. Our last 3 picks, 1 has taken off rather well and two continue to consolidate slightly lower into their previous upside gaps. This is where money management comes into play and should take up out of any positions that under perform, opening us up to make new recommendations. However, with the barometer in sell mode, this is not the best time to be buying - it's the best time to be watching our current positions, applying appropriate money management strategies and watching the market for the next big opportunity.
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If you have any questions or comments, email me at Jay@stockbarometer.com.