Dollar, Bonds and Stocks - Round 2
9/21/2011 9:02:43 AM
Dollar, Bonds and Stocks - Round 2
Warning Signals Start Flashing
If youíre new to my philosophy on the markets, youíll know that Iím not into news much. I donít think news drives the market like youíll see on CNBC. Otherwise, we could all just turn on CNBC and follow their advice and get rich. Iím not sure about you, but I watch CNBC all day long and you have to recognize their place. Theyíre just a news outlet. Theyíre content. Thatís it. They present so many diverse opinions, that an individual will tend to hear what they want to hear, not what will make them money.
So what moves the market? Itís all about how traders position their money. And when I say traders, Iím talking everyone, investors, institutions, hedgies, etc. That positioning is what determines where the market will go. So itís not the news that moves the market, but the marketís overall reaction and positioning to the news.
The nice thing about this, is that it allows us to take current news events and compare the market positioning to points in the past and draw profitable conclusions. So if youíre looking for me to give a darn about what the fed is going to do today, youíre not going to get it. As a trader, I do look at the timing of the moves, as the timing is critical to traders. I may press the buy or sell button right before depending on how the market sets up intra day.
And itís important to know that you wonít know until you get there... The more you establish a bias before an event, the more likely youíll be wrong. There are many short, intermediate and longer term indicators to read the market that understanding their impact in ítimeí - takes a while.
If youíre interested in learning more, Iíll be going into more detail on this when I speak in Chicago this October at the World Money Show.
So where are the markets positioned now? Iím still bullish. Itís also important to understand that some calls on the market are more easy than others. Iíve been looking for the markets to hold the lows of the past several weeks and Iíve been looking for a move higher. Weíve got all of that, now whatís going to happen.
This is usually where Iíd say this is where the rubber meets the road. I donít think the markets have done enough upward movement to put in a top. So I remain bullish here. That doesnít mean we wonít see a short term pull back. But longer term, Iím bullish. There are things I need to see before the market puts in a mid term top - where Iíd prefer to get bearish.
Be my guest at this year's World MoneyShow Chicago, October 20-22, 2011, at the Hilton Chicago Hotel. Donít miss out...register FREE and be sure to mention Priority code 023768! Click here to see more details about when my session will be and what it is about.
Hereís a look at the global markets:
On the economic front, here is the schedule for this week. Pay close attention to the timing of the report and the potential for the markets to make short term reversals at those points.
On to the charts:
Stock Barometer Analysis
The barometer is in Buy Mode, and we expect this pattern to play out for further upside - into 9/25.
The Stock Barometer is my proprietary market timing system. The direction, slope and level of the Stock Barometer determine our outlook. 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. Trend and support can override the barometer signals.
Money Management & Stops
To trade this system, there are a few things you need to know and address to control your risk:
- This system targets intermediate term moves, of which even in the best years, there are usually only up to 7 profitable intermediate term moves. The rest of the year will be consolidating moves where this system will experience small losses and gains that offset each other.
- This system will usually result in losing trades more than 50% of the time, even in our best years. The key is being positioned properly for longer term moves when they come.
- Therefore it is vitally important that you apply some form of money management to protect your capital.
- Trading a leveraged index fund will result in more risk, since you cannot set stops and you cannot get out intraday.
- Make sure you set your stops so that you can lose no more than 2% per trade (based on the QQQQ if you're trading leveraged funds and options with our trading service).
Potential Cycle Reversal Dates
2011 Potential Reversal Dates: 1/15, 1/29, 2/16, 3/10, 3/18, 4/6, 5/21, 5/31, 6/13, 6/24, 7/16, 8/1, 8/19, 9/4, 9/25, 10/21, 10/25. We publish dates up to 2 months in advance.
We believed 9/4 marked a low, and that weíd rally into 9/25. Seasonality is pointing lower. Our next key reversal date is 9/25. Beyond that, weíre looking out into October.
There is a chance that the markets will reverse here for yet another test of the lows. And from a 9/25 low, move higher into October, inline with normal seasonality patterns. Weíll be watching this one closely - but itís never a bad idea to lock in some profits when you get a chance.
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.
2010 Potential Reversal Dates: 1/19, 1/28, 3/2, 3/23, 4/7, 5/30, 6/10, 6/28, 7/10, 8/13, 9/7, 10/2, 10/27, 11/21, 12/19. We publish dates up to 2 months in advance. 2009 Published Reversal Dates: 1/20, 2/11, 3/7, 3/15, 4/8, 4/16, 4/27, 5/7, 6/8, 7/2, 7/17, 9/14, 10/10, 10/24, 11/12, 11/30, 12/9, 12/21, 12/29. 2008 Potential Reversal Dates: 12/31, 1/11, 2/1, 2/13, 3/6, 4/5, 4/22, 5/23, 6/6, 6/27, 7/13, 9/2, 10/3, 10/22, 11/10, 12/11. 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, 10/19, 11/29, 12/13, 12/23, 12/31, 1/11/08. 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: 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.
Use the following Timing/momentum indicators to assist in your trading of the QQQQ, GLD, USD, USO 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. 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 Timing Indicator (NASDAQ:QQQQ)
The QQQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us an idea of the next turn in the market.
Gold Timing Indicator (AMEX:GLD)
Want to trade Gold? Use our signals with the Gold ETF AMEX:GLD. Gold gives us a general gage to the overall health of the US Economy and the markets.
US Dollar Index Timing Indicator (INDEX:DXY)
Want to trade the US Dollar? Use our signals with the Power Shares AMEX:UUP: US Dollar Index Bullish Fund and AMEX:UDN: US Dollar Index Bearish Fund.
Bonds Timing Indicator (AMEX:TLT)
Want to trade Bonds? Use our signals with Lehman?s 20 year ETF AMEX:TLT. The direction of bonds has 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 Timing Indicator (AMEX:USO)
Want to trade OIL? Use our signals with AMEX:USO, the OIL ETF. We look at the price of oil as its level and direction has an impact on the stock market.
Secondary Stock Market Timing Indicator
We daily monitor hundreds of popular and proprietary technical indicators that break down market internals, sentiment and money flow to give us unique insight into the market. We feature at least one here each day in support of our current outlook.
As an annual subscriber to any of our services, you will get access to all our charts and research. Email Carl@stockbarometer.com to upgrade and also save 20% on your subscription.
Daily Stock Market Outlook
We remain in Buy Mode, looking for the markets to move higher into the end of September.
Again, 10/18 to 10/21 are the next dates of focus following 9/25.
The above chart shows the Equity Index Option Volume Ratio. When it rises, it suggests that the individual is back in the market. I prefer to see it rise before the market tanks. And weíre not there yet, by any means.
Gold and Oil - Letís have a little discussion on volatility.
Iím a fact guy. If I canít chart it related to an index and show some correlation, then I donít pay attention to it. My analysis is all about facts, anything else is noise and you must learn to eliminate it from your thought process.
Oil volatility is much like market volatility:
Based on this positioning and thinking that the markets will move higher, I would buy lows on oil here.
Gold volatility is the opposite - high volatility tends to stall price action:
This suggests to me that gold has room to go lower. And will. And that will be bullish for stocks to rally into month end.
So as we talked about yesterday, itís all about bonds and dollar action here. Now a little bit about fed days like today. The volatility can be a bit unnerving. And many institutions will wait and see, ad act the day following the Fed Day. So thereís a tendency for the day following the fed day to get reversed in the short term.
So the dollar and bond test of highs is still going on and their next moves will have implications in the stock market - as bond selling will automatically result in a boost in the indexes as computers automatically rebalance on a daily basis.
If youíre looking for more information, please visit our blog - Iíll have updates and publish other articles there. http://investmentres...group.com/Blog/ Iíve been laying out an oil short trade for a while now. Oil should bounce in the short term but longer term, I see it setting up to head lower.
Jay DeVincentis is President of Investment research Group, Inc. and founder of www.stockbarometer.com. Jay worked as an executive in the financial services industry for over 21 years and left to form his own company in line with his passion, the financial markets. Jay Graduated from the University of Massachusetts, Amherst, MA with a Mechanical Engineering Degree. Jay has been advising his clients what to buy and when for over 10 years. He is a market timer, a stock trader, a day trader and a stock investor and also conducts online stock trading classes.
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