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Cumulative Tick Index

This indicator shows us when individuals are jumping in the market, which is usually a sign of a top…

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stock market timing

Good morning Traders,

Here’s a chart from our morning update from the Daily Stock Barometer:

AAII BULLS

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Good morning traders,

People are always asking us about the benefit of market timing.  Well, here are 3:

In our Daily Stock Barometer, we positioned short the market before the large move lower. 

In our Stock Options Speculator, we positioned in PUTS well before this move, when they were the least expensive.

And in our Covered Call Alert, we published our top 100 list for covered calls – at the top – so you could sell some calls and profit from your holdings.

So when’s this move going to end?  In our Daily Stock Barometer, we’ve given the day we believe this move will end – based on our highly accuate model forecasting.  And when the move ends, we’ll reposition Long this market as well as give you our top CALL OPTIONS to play for the advance…

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Good morning Traders,

I just wanted to update you on an indicator that we’ve been following – cumulative money flow:

money flow

This indicator turned down a few weeks ago, and crossed below it’s 13 week moving average.  That, in the past, has been a precursor to a potentially large sell off.  That reading has reversed, but not taken out the previous highs.  That’s the next point we’d look for. 

Also, the price action coming off the March 2009 bottom (which we called on March 10th) is starting to look like a mathematical anomaly.  Something that we’ve seen happen in gold already, and the Nasdaq back in 2000 and so on.  There’s no way to figure out when it’ll trigger.  But I’d be cautious as a result, as it normally doesn’t end well. 

As for our barometer:

stock market timing

In the short term, the system is showing the potential for a retest of the highs, but when you think of trading, you need to think in terms of frequency and magnitude.  And while no one can predict the future, and to a large extent the markets are random, the likely of a small move higher is high, but the larger move would be to the downside.  Whether it gets started today (Friday before options expiration week) or next week.  We’re still seeing conditions that would make us cautious.

So I would normally say, hurry up and wait as respects the markets here.  It’s setting up for something big, but we’ll have to be patient as the move could initiate within 1 day to 1.5 weeks.

Regards,

www.stockbarometer.com

Good morning Traders

We’re still seeing excessive optimism and expect this bounce to play out as we said before into the end of the week – quite possibly into Wednesday the 15th – which is our next key reversal date and note that it also aligns with Friday the 17th, which is options expiration.  Here’s our short term barometer:

stock market timing

As you can see, in another day or two of upside movement, the market will be overbought again.  In addition, the equity option activity is highly bullish – which is a signal that you’re in the window for a top.  Part of the job of topping action in the market is to make everyone bullish – and that sets up the vacuum of liquidity, which will start to push equity prices lower on a sustained basis.

Granted, we still have the bond issue – if bonds sell off, we’ll see more liquidity coming in the market.  But the level of sentiment is so high, that tomorrow’s money flow reading is even more significant to me than any Jobs report!

So stay tuned…

Regards,

www.stockbarometer.com

Good morning Traders,

Turnaround Tuesday’s bounce pushed the barometer up to the signal line – as well as the QQQ to just below the 9 day moving average.  Here’s what it looks like:

stock market timing

We had a similar move back in August, where the markets slightly broke their previous highs.  What’s going on here?  We’re seeing historic complacency.  But that doesn’t mean that the market will sell off in a trending move right now.  If the markets were to weaken here, I would get more bearish and we’d position short.  But the jury is out in the short term, so we’re comfortable with our current cash position – though I’m still leaning about as bearish as I’ve been in a long time and would move to short on continued weakness as that’s a sign that things are starting to turn.

Regards,

www.stockbarometer.com

PS – Subscribers to trader Mark McMillan get access to his chat room every day – you can sign up through our subscribe page – or through clicking this link Mark McMillan

Good morning traders,

We’ve seen the weakness extend for a third day into the new year and while we’re itching to position short, we’ll give the market a little room for a bounce – as the retesting of highs is part of the topping process.

qqq-spy-rsi

As for the barometer, we should be short, but we’re waiting for this retest bounce.  We’re seeing complacency into this selling, which is about as bearish as it gets:

stock market timing

So for a better short term view of what’s going on, and why we’re expecting a bounce:

stocks are efficient

This indicator shows the efficiency of a move, in the short term, the market should bounce, and if it doesn’t, it’s weaker than any of us predicted…

Starting the year off with 3 down days and the market not getting fearful at all on the decline, lacking participation in the selling, means the market doesn’t believe the down move.  That’s normally a recipe for a continued sell off, which we expect to see after a bounce that retraces some of the initial move lower.  At that point, we’d look to position short – possibly closer to the week’s end.

Regards,

www.stockbarometer.com

A mixed close as Santa Claus rally comes to an end…

Friday marks the official end of the Santa Claus rally…

Recommendation:  Take no action.    

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Stock Market Trends:

 stock market trends

– ETF Positions indicated as Green are Long ETF positions and those indicated as Red are short positions.

– The State of the stock market is used to determine how you should trade.  A trending market can ignore support and resistance levels and maintain its direction longer than most traders think it will. 

– The BIAS is used to determine how aggressive or defensive you should be with an ETF position.  If the BIAS is Bullish but the stock market is in a Trading state, you might enter a short trade to take advantage of a reversal off of resistance.  The BIAS tells you to exit that ETF trade on “weaker” signals than you might otherwise trade on as the stock market is predisposed to move in the direction of BIAS.

– At Risk is generally neutral represented by “-“.  When it is “Bullish” or “Bearish” it warns of a potential change in the BIAS.

– The Moving Averages are noted as they are important signposts used by the Chartists community in determining the relative health of the markets.

Best ETFs to buy now (current positions):

Long DIA at $161.48 as of December 19, 2013

Long QQQ at $85.99 as of December 19, 2013

Long SPY at $181.19 as of December 19, 2013

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Value Portfolio:

Long SDRL at $35.00 (Shares were put to us when options expired on June 15, 2012.  We were paid $1.10 per share when we sold those options).  We have collected significant dividend payments since entering the position.

Short FXE at $124.19 on August 24, 2012

Long UUP at $22.43 on August 24, 2012

Short FXE at $134.48 on October 4, 2013

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The major indexes opened flat to higher.  They then all attempted to rally in the first half hour before the NASDAQ-100 gave up.  The Dow and S&P-500 continued the attempt for the better part of an hour following then too gave up.  All the major indexes found a low around noon and began to head higher.  The moved ended with the end of the lunch hour and prices began to head lower yet again.  For the S&P-500, the move would not retouch the noon low but the Dow traded slightly lower before all three headed higher in a move that would last much of the rest of the session.  However, weakness began to show up in the Dow and S&P-500 in the final forty-five minutes and with a half hour remaining, the NASDAQ-100 joined the other major indexes in a move lower.  That move culminated with the Dow modestly higher, the S&P-500 flat, and the NASDAQ-100 finishing at its lows matching its noon trading level.  The Russell-2000 (IWM 114.69 +0.58) and the Dow Jones Transports (IYT 130.92 +0.84) posted fractional gains while the Semiconductor Index (SOX 526.68 -1.07) posted a modest loss.  The Bank Index (KBE 32.85 +0.04), the Regional Bank Index (KRE 40.03 +0.04), and the Finance Sector ETF (XLF 21.89 +0.15) were all able to post fractional gains.  All equity indexes finished above their 20-, 50-, and 200-Day Moving Averages (DMAs).  Only the Dow was able to maintain its uptrend state.  All other equity indexes we regularly follow were in trading states.  Longer term bonds (TLT 102.17 +0.00) closed flat.  It remains below its 20-, 50-, and 200-DMAs.  It has a BEARISH BIAS and remains in a downtrend state.  Trading volume decreased remaining light with 544M shares traded on the NYSE.  On the NASDAQ, trading volume decreased to below average with 1.653B shares traded. 

Other than the crude oil inventory report, there were no economic reports of interest released.

We are watching gold for a potential bottom and are looking at entering a long position in the Gold Miners Index (GDX 21.83 -0.20) fell one percent.

Apple (AAPL 540.98 -12.15) fell more than two percent.  AAPL constitutes about 20 percent of the NASDAQ-100 and nearly five percent of the S&P-500. 

The U.S. dollar rose four tenths of one percent while the Euro fell six tenths of one percent.

The yield for the 10-year rose a single basis point to close at 3.00.  The price of a barrel of crude fell -$1.48 to close at $93.96.  The U.S. government reported a draw down of 7.007M barrels of crude oil last week.

The implied volatility for the S&P-500 (VIX 13.76 -0.47) fell three percent.  The implied volatility for the NASDAQ-100 (VXN 15.83 -0.03) closed relatively flat.  The VIX is still below its 200-DMA but the VXN closed above its 200-DMA for the first time since mid-December.    

Market internals were bullish with advancers leading decliners 9:5 on the NYSE and by 5:3 on the NASDAQ.  Up volume led down volume 5:4 on both the NYSE and the NASDAQ.  The index put/call ratio rose +0.19 to close at 1.44.  The equity put/call ratio fell -0.02 to close at 0.54.

Conclusion/Commentary

Friday saw the official end of the Santa Claus rally.  That does not mean that the market will go lower but rather the seasonal factor that provides a high probability of the market moving higher is now absent.  We see reasons to be both bullish and bearish.  Janet Yellen is expected to be confirmed as the incoming Fed President replacing Ben Bernanke.  This is regarded as bullish by equity markets as Yellen is a dove and appears committed to maintain easy money policies for the foreseeable future.  We remain long at this time.

We hope you have enjoyed this edition of the McMillan portfolio.  You may send comments to mark@stockbarometer.com.