Bounce
7/6/2010 9:17:42 AM
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Bounce
On Friday we positioned for a bounce, here’s why...
There are so many undercurrents of the market that making decisions can be a paralyzing event - and that’s what we address here. What I saw was the market being oversold, the seasonal cycles pointing to a potential rally and the market approaching a period where it normally rallies.
On CNBC the traders there were talking about a huge down day coming on Tuesday. Not sure where they got that from. I expected a more likely huge UP day, so we flipped our position on Friday to bullish.
I expect the market to move higher into the middle of this month.
In addition, I’m also looking for a bounce in oil. A very contrary play, since most were talking about $60 oil. I just think that’s their linear thinking in a cyclical world.
Let’s see who’s right
Stock Barometer Analysis
We issued a Buy Signal on Friday, placing us in Buy Mode.
Just so we’re clear, the barometer is still pointing lower, but is extended. When the market volatility is above 20-30, we go into trading move, meaning the barometer may be a little slow to react, and I handle the trades personally (because hgh volatlity can result in sharp moves against ut).
So what I see is a seasonal bounce in an oversold market into 7/11 to 7/22 and then more selling into a stronger low in August.
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.
Accordingly;
- 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
2010 Potential Reversal Dates: 1/19, 1/28, 3/2, 3/23, 4/7, 5/30, 6/10, 6/28, 7/10. We publish dates up to 2 months in advance.
Our expectations are for a rally into our next key reversal date - or next seasonal high period.
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.
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.
Spread Indicators
Use the following spread/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 Spread Indicator (NASDAQ:QQQQ)
Gold Spread Indicator (AMEX:GLD)
US Dollar Index Spread Indicator (INDEX:DXY)
Bonds Spread Indicator (AMEX:TLT)
OIL Spread Indicator (AMEX:USO)
Supporting Secondary 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.
Summary of Daily Outlook
We remain in BUY Mode since Friday, looking for the market to move higher into mid July.
If we get that action, then look out below - we’re moving lower into August (much lower).
Big picture, I’m bullish on oil and bearish on the dollar, bonds and gold. Gold is moving lower first and should consolidate lower for most of the next few months. Oil, I will watch closely - playing a bounce with UCO - but the oil market has been purplexing most. Bonds are not moving lower yet - some sustained bullish market activity could get people to sell bonds here and move into the market. That would extend the rally to previous highs - although that may be optimistic.
I hope you all had a nice holiday weekend - I know I did (and could use a good long day of trading to recover).
I am in the chat room from 9:30 to 10:30 am (est) if you want to ask any questions.
If you have any questions or comments, email me at Jay@stockbarometer.com.
Regards,
Jay DeVincentis - President - Investment Research Group, Inc.
Founder - www.stockbarometer.com
www.stockbarometer.com/candlesbearish.aspx
www.stockbarometer.com/candlesbullish.aspx
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