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December 18, 2005 Dow 11K Sell Bell? - Are You Listening? |
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Opening Whisper I don't think the Nasdaq 100 (NDX) has been this flat for 3 weeks in a row since December 2004. It seems that the Christmas rally may be over. For some reason this song came to my mind as I am watching the markets tread water today, and ever since the first of December. Where have all the flowers gone? Listen here: http://www.niehs.nih.gov/kids/lyrics/flowrsgone.htm Where have all the buyers gone? For that matter, where have all the sellers gone? What "kind" of resistance are we seeing here? I don't think that the resistance is from the index price levels themselves. Certainly the Dow Industrials should not be inhibited just because of the big round 11,000 number. There must be something else troubling this market. But what? Earnings going forward? Mutual fund flows? Interest rates? Debt? We are trend followers and not trend predictors. We can't buy and sell the news. We can only profit from price movement. And right now it's NOT MOVING! We will likely see a move soon to break out of the flat channel that the Nasdaq 100 is in currently. Many of our subscribers have told me that they are in cash waiting for the next move. That's not a bad idea. We may see a little more buying before year end. My only hesitation to the buy side is that any break to the upside may be a false breakout. If they ring the Dow 11,000 bell on or before December 30 th, that bell may signal the top. The selling may then begin in earnest in the early days of January. Why should Dow 11,000 be the bell ringer? No reason at all other than this market is acting very flakey and without conviction. A deja-vu Christmas rally and selling into January? "When will they ever learn? When will they ever learn?" What Is The Current Market Sentiment? The market has no new trend other than the bullish trend from mid-October. Sentiment has clearly moved to the extreme bullish side. Investors' Intelligence bullish - bearish divergence has not been at this bullish extreme since the first week in August and that extreme was a sell signal. The CBOE Total Put/Call Ratio weekly chart below is confirming a short-term top.
The November 2005 low in the CPC (bearish) has been fighting the seasonal year-end rally. It's kind of like sending Christmas cards to friends. In most cases, it's just expected. So the November/December rally happens just because it's expected. But some expectations can end badly as they did in January 2005. Both VIX and CPC are closer to bullish sell signal extremes than they are to bearish buy signal extremes (in a contrarian view). The weekly VIX chart below shows just how quickly bullishness has accelerated into options since mid-October. You don't have to guess or predict to believe that these low VIX readings are usually the signal to sell the markets.
Our Trading System - What The Numbers Are Telling Us The markets played out almost exactly like last year during the 3 rd Friday of December when the NDX was down on the day. NDX was down 0.77% on the day and down 0.23% on the week. SPX was up 0.63% on the week. If the analogy to last year holds, then the final nine trading sessions of the year will be characterized by rising prices on dramatically lower volume. Placing a bullish bet at this point might be in accordance with the trend since mid-October, but it would have a lot of risk should the low-volume day/swing-traders decide to exit early. The long side does not appear to have much value at this point.
The Nasdaq Summation Index ($NASI) has been a good indicator signal for the NDX. If you pull up a $NASI chart of December 2004, you will see that it dipped to signal an early exit before the January 2005 sell-off. We are possibly seeing similar action in the NASI chart above. Trend Compliance: The NDX market looks to be making a slow-motion roll-over. This sure does feel like December 2004 all over again.
The Markets Are Whispering - Are You Listening?
(Updated as of Dec. 16)
3 This Market Listener signal is our base signal.
The MACD is our primary weekly input, but can be "out-voted" by the other
faster or proprietary indicators on a daily basis when we need to go to cash
to implement our Fault Tolerant Cash Safety Stop (FTCSS). You should not
base your trading on this or any other single indicator. Our trend following
system can dynamically adjust parameters based on current market conditions
including volume and sentiment factors. We also employ proprietary indicators
which can override the current model.
Listen To What He Says KJV Luke 2:7-14 And she brought forth her firstborn son, and wrapped him in swaddling clothes, and laid him in a manger; because there was no room for them in the inn. And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid. And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people. For unto you is born this day in the city of David a Saviour, which is Christ the Lord. And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger. And suddenly there was with the angel a multitude of the heavenly host praising God, and saying, Glory to God in the highest, and on earth peace, good will toward men. I am working on the art of listening and hope that you are also. Best Profits, 
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Gregory W. Miller, P.E. Paid Subscribers receive mid-week alerts to market changes that impact our system. The alerts advise of changes in stop level or signal changes prior to the Friday close of trading. The Market Listener Trading System - My adaptive trend following trading system is the result of years of mistakes. I always seemed to be zigging when I should be zagging. My investing was based too much on emotion and inputs from so many varied newsletters and methods. After what has been literally years of personal research into cycles, Elliott Waves, artificial intelligence and many other systems, I have learned that my own trading style is best handled by avoiding the "art" of prediction at all costs!!! When I looked at moving averages for indication of trend direction, it seemed that they too were always 180 degrees out of phase with what I should have done. My conclusion, after many losses and much frustration, is that I needed to keep it very simple and let the market tell me what it wanted to do. In particular, I wanted to follow the trend, which is your friend, until the market whispered, or shouted to me that it wanted to change directions. And then, I found that Stochastics and Rate of Change indicators help me go to cash until the trend reverses or continues. Thats how my trend following system & its cash management component developed. I trade Rydex Venture and Velocity funds by which I can go short (x2) or long (x2) the NDX (NASDAQ 100 Index). I hope my newsletter and its insights can give you an education on alternative investment strategies. You might find your own technique or modify mine. Links: About the Author: Gregory Miller is a registered Professional Engineer (PE) in the State of Texas. He has been involved in electrical engineering and projects in the U.S. and some far-flung regions of the world. Greg has studied the markets for decades and enjoys applying his analytical abilities and computer number crunching to the science of investing. Copyright © 2005-2006 All Rights Reserved by Gregory W. Miller Image rendition and html coding Copyright © 2000-2009 SafeHaven.com ADVERTISEMENTS
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