Market Timing – Weekly Stock Market Strategy – July 2010

Weekly stock market strategy updates that went out to subscribers during July 2010. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 7/3/10

Well the market could not close above June 25^th high and it soon became apparent that 104 on the SPY would be tested. It was breached on Wednesday. Despite the fact that some of the indexes have lost almost 10% over the past two weeks, I do not believe we have seen the last of this sell off. Market sentiment is poor but not bad enough that we should expect a rebound. Last week I mentioned a target of 87 based on a break in a head and shoulders formation. If this market were to act like a true textbook head and shoulders we may see a failed test of the 104 level on the SPY. That should now act as resistance. Looking at the charts the next support level of significance is near 94 on the SPY. This would also be a 50% retracement of the move that started off the March ’09 lows. I have written in the past how I use RSI as a long-term trend indicator. Well with Fridays close the 14-period RSI on a weekly SPY chart closed below 40. To me this officially makes this a bear move. It also makes it more advantages to sell rallies than to buy dips.

Our Quarterly ETF portfolio has taken a beating. The good news is the pain should be over soon. We will be adjusting this portfolio in next week’s newsletter. An early look at the Lipper Mutual Fund Performance Indexes indicates this portion is likely to go 100% into cash.

Weekly Market Update 7/11/10

What a difference a week makes. I am glad I had not placed any new trades based on the bearish moves prior to the holiday weekend. This market feels like the professionals are moving the market around to inflict maximum pain on the average investor. First we have the unexplainable flash crash on May 6^th. Then the markets test the 104 level on the SPY during the last week of May and the second week of June. This should have confirmed 104 as support. Then the markets make a higher high the week of June 14^th. This indicated maybe a bottom was in place and we could expect higher prices. The next week began a sell off that took the market below support at 104, and indicated the possibility of a new leg down. This week the market reverses and gives us its best performance in over a year. I am not sure what to make of this weeks move. I am glad we have been mostly on the sideline except for the Quarterly ETF portfolio, and when we exit those positions on Monday we will be 100% in cash.

Typically a failure of a head and shoulders can be a bullish pattern itself. But I do not trade off chart patterns alone. The interpretation is to subjective for me. Last week I stated that the RSI had indicated we are in a bear market and I will stick by that until the RSI tells me otherwise.

Weekly Market Update 7/18/10

The SPY seems to have found some resistance near 110. The highs Tuesday thru Thursday were very close to that level. Friday the market decided to sell off and closed down 2.5% for the day. Typically a new bull move would brush off its first overbought readings and just keep moving higher. That did not happen this week and confirms my suspicions at least momentarily.

Two weeks ago I indicated we are in a bear market. I would like to take a moment to clarify and adjust my opinion slightly. I have stated previously that a RSI (14 period) close below the 40 level indicates a bear market move. On a daily chart I would call this an intermediate bear move. The SPY RSI closed below 40 on May 6^th, the day of the flash crash. The RSI, on a daily chart, has not traded over 60 since that time so we are still technically in an intermediate term bear move. I also look at the RSI on a weekly chart to indicate long term moves in the market. During the week of July 2^nd the weekly RSI closed below 40. On a weekly level I would like to see the market trade below the low of the week that generated the RSI reading below 40. We did not have that so the long-term RSI bear signal was not confirmed. However a close below 101.13 would confirm a new long-term bear move.

Weekly Market Update 7/25/10

The SPY managed to close over resistance at 110. This is a good short-term sign for the bulls. The next level of resistance will be between 112 and 113. I think this will be a much more significant level than 110.

About 85% of the S&P 500 companies that have reported earnings in the last two weeks have beaten estimates. Yet the SPY is up only a little over 2% during that same time frame. The markets appear to have run up in anticipation of a positive earning season. Now the question is, “What will drive the markets from here?” I am not going to try and pretend I know the answer. However if the market struggles from this point, the implications would clearly be a negative for the markets going forward. Maybe letting the Bush tax cuts expire will be the catalyst. Raising taxes in this fragile economy, I think is a recipe for disaster. Some of the news stories I am reading are implying that the Bush tax cut debate will be used to sway votes in the elections this fall. Are our representatives in Washington so psychologically disturbed they are willing to risk an economy, on the edge of a depression, to garner a few votes?

Market Timing – Weekly Stock Market Strategy – June 2010

Weekly stock market strategy updates that went out to subscribers during June 2010. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Stock Market Strategy Update 6/5/10

Well my rare but reliable ADX signal is not looking so good. Maybe you were fortunate enough to wait until the final hour of trading on Thursday. If so, you may not have taken the trade. That is usually how I place the trades but since I had back tested this ADX system with a buy stop that is how I placed the trade. Since I suggested this only as a more aggressive trade, hopefully most of you did not take it. I will exit this trade at 104.25 on a stop.

So much for a cascade of buy signals following the ADX buy signal. The buy stop was barely breached on Thursday morning before the selling began. A weak afternoon rally could not even reach the stop level. Friday’s weak employment report was all that was needed to start the sell off. It appears the 104-105 level on the SPY will have to be tested a third time. The more the market sells off the more bullish I am getting. It just becomes a matter of waiting for the market to stabilize and start generating some buy signals. However, just because sentiment has declined and the market has sold off, does not mean we can’t see a prolonged decline.

Weekly Stock Market Strategy Update 6/12/10

The market has found a range that it is comfortable in. Until the SPY has two consecutive closes above 111.50 or below 104.00, it is not entirely possible to no which direction this market will trade in the intermediate term. I think the odds are slightly in favor of a bullish move out of this range. Currently however, it is to early to make a trade based on that assumption. We will have to watch and wait.

Weekly Stock Market Strategy Update 6/20/10

Thursday and Friday the SPY managed to close above 111.50, which I had pegged as resistance. The market is now overbought and looks like it needs to take a breather or sell off a little before it can work its way higher. I have not seen any new buy signals but they could come when the SPY takes out the high of 111.73. There is nothing else to report this week. If signals are generated I will send out a midweek update.

Weekly Stock Market Strategy Update 6/27/10

The SPY traded down Monday thru Thursday. The sell off was a little more than I had anticipated. Now the SPY is oversold and Friday’s consolidating price action indicates that a close above Fridays high could be at least a decent short term buying opportunity. Looking at the charts this week, the possibility of breaking support near 104 on the SPY, needs to be considered. The weekly chart looks as if a Head and Shoulders formation might be in the making. If we do manage multiple closes below support at 104 the target would be around 87. That is quite a sell off from current levels and is by no means what I expect to happen. However since there is such strong support at 104 and the SPY closed near 108, the downside risk is somewhat limited at 4%. If you’re wrong you risked 4%. If you’re right this may be the best buying opportunity for the next three months. This suggestion is based purely on technicals and is not generated by any systems that I watch. For that reason I will not track this as an official buy signal.

Market Timing – Weekly Stock Market Strategy – May 2010

Weekly stock market updates that went out to subscribers during May 2010. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 5/2/10

Some volatility has found its way back into the market. We have not seen two large down days this close since the decline that lead to the February low. Momentum is waning; the market has basically been flat over the past three weeks. Where it goes from here is anybodies guess but with market sentiment at bullish extremes this is probably not a bad time to tighten stops.

It appears Greece is close to a bailout from the EU and IMF. The question is how will the markets react. Will they see it as bandage when a tourniquet is needed? There is a troubling trend I am starting to see emerge as it is occurring in Greece and here in the U.S. As governments struggle to balance their budgets during this prolonged recession, they are starting to get resistance from labor groups and those reluctant to seeing a cut in wages or benefits. Those with the biggest budget problems could face financing issues just has Greece has.

Midweek Update for 5/6/10

In case you have not heard the market took a serious drop today. At one point the DJIA was down 1000 points, before closing down 347 points, or –3.20%. The jury is still out on what caused the sell off, but two primary factors are the Greece bailout and error in a Proctor and Gamble trade. I am sorry but something is seriously wrong when a trade error can cause a 1000-point decline.

I am glad that I have been 75% cash for the time being but questioning whether I should have had stops on my Quarterly ETF portfolio. I think in the long run the quarterly rotation will keep us out of any prolonged declines, and that is why I am hesitant to place any stops on this portfolio. The portfolio is down 6 percent for the quarter, with most of the damage in SCZ, which is of 10%.

The charts look pretty scary. Today’s price action basically even if it was a result of trade error is a bit bothersome. On more than one occasion I have seen the markets trade back down to the trade error lows. I am not sure why, maybe the markets feel a need to test that level again. Anyway if that happen the DJIA will have to trade down another 600 points before it can stabilize.

Weekly Market Update 5/9/10

Friday came and went and there still does not seem to be a consensus as to what the hell happened on Thursday. In November 2007 the NYSE ended trading curbs, which limited program trading. Prior to that date program sales could not be placed on a down tick if the curbs were in affect. Now only circuit breakers remain and they do not kick in until the DJIA has dropped 10% or 1050 points. Today a lot more trading occurs off the floor of the major exchanges and on the electronic exchanges. There are no consensus rules, between the various exchanges, that handle an event such as the one that occurred on Thursday. In my personal opinion some sort of circuit breaker at -5% and program trading limits at -3% would be more appropriate. Sometimes things happen in the market that no one can explain and, a temporary halt to trading to figure out what is going on, is not a bad idea. Another possibility is that sense market sentiment was so high; there were probably a lot of stops in place that started getting triggered, as the market began its fall. Something like yelling, “fire!” in a crowded theatre. I would like to think that the SEC would come out, before the end of the week, with some safeguards to prevent this from happening again. This is a real blow to the confidence that people have in the markets something will have to be done ASAP.

Until there is some stability to the markets I do not think I will be recommending any trades. The charts are just plain ugly. There is a void between the Friday lows and Thursday lows and it will be hard for me to put faith in any attempts the market makes at forming a bottom until the Thursday lows are tested.

Weekly Market Update 5/16/10

The week came and went and still there is no consensus, on what caused the May 6th sell off. I find that somewhat disturbing. What I find even more disturbing however is, that the SEC has not come up with any plans for trading halts to prevent future declines of a similar magnitude.

From a technical standpoint the averages managed to rally through Wednesday but rolled over on Thursday and Friday. The high this week provide a price level that when breached to the upside will begin to give some comfort to some stabilization in the market. I am not saying that is what I expect. However, until The May 6th lows are tested or the market can make a series of higher highs, we are kind of in a no mans land, with no clear intermediate term direction.

Weekly Market Update 5/23/10

The SEC is still investigating the May 6th “flash crash.” Several factors appear to have contributed to the sell off. The factors appear to be, inconsistent rules among the various exchanges, speculation in the futures market and, the lack of participation by market makers. It appears that the market makers were not able to step in and be the buyer of last resort. Maybe that is because so many went out of business as the electronic exchanges took volume from the physical exchanges.

The markets took another big hit this week. But as I have been saying the last few weekends I felt there was a good chance the May 6th low would need to be revisited. The markets tested that low during Friday’s open then proceed to make a very strong rally to close up 1.5% for the day. If the markets have worked out there issue with the Euro, I think there is a very good chance this is a tradable low. Most of the trading strategies I watch will require a decent bounce from this level before triggering a buy signal. But the more aggressive subscribers could look to go long the SPY if in the final hour of trading the SPY is trading over 110. The market should be able to manage at least a two-week rally from these levels. I will have to wait for more signals to come in before I can get more confident about a longer-term scenario.

Weekly Market Update 5/30/10

A rare but reliable technical signal has set up this week. This signal is 9 for 9 dating back to 2000. Simply put when the 14 period ADX goes over 40 buy at a price of 2 times the 21 day average true range added to the 5 day low, then hold for 15 trade days. The buy price would be 110.90 on the SPY. Keep in mind this is a short-term signal and I would not recommend it for your 401k or retirement account.

We did not get the close over 110 on Monday I was hoping for. As bullish as sentiment was last month it has done almost a complete reversal. This could mean we are getting close to some buy setups. The market has sold off but now it will have to show some strength over a period longer than a couple days. If we have seen the worst of the selling, the ADX signal could start a cascade of buy signals. Only time will tell.

Market Timing – Weekly Stock Market Strategy – April 2010

Weekly stock market updates that went out to subscribers during April 2010. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 4/4/10

Most of the markets finished up just shy of 1% for the week. Not
much else has changed. I think the upside from her is limited and
risk of entry from this point is to great.

Weekly Market Update 4/11/10

The markets have continued to rise and more sentiment indicators are
reaching extremes. Long entries at this point carry additional risk.
That being said, Barron’s Quarterly mutual fund report is out this
week. So, if you plan on following the Quarterly ETF Strategy, Monday
will be the day to place your trades. Based on the system I sent to
you in the Quarterly ETF Strategy email here is the allocations for
this quarter:

Quarterly ETF Strategy Allocation

25% IJT-iShares S&P Small Cap 600 Growth
25% IJS-iShares S&P Small Cap 600 Value
25%. EWJ-iShares MSCI Japan Index
25% SCZ-iShares MSCI EAFE Small Cap

I am allocating 25% of my total portfolio to this strategy so I will
be putting 1/16 of my total portfolio into each of the four ETF’s
listed above. By the way, as of Fridays close, this strategy was up
5.11% for the first quarter.

Weekly Market Update 4/18/10

The markets finally took a 1% hit on Friday when the SEC brought
fraud charges against Goldman Sachs. I would like to see some of the
Wall Street firms pay for bringing our economy to the brink of
financial disaster. Usually when they make a mistake the damage is
limited. This time they almost brought down the entire system. That
being said it doesn’t sound like the SEC has much of a case.
Brokerage houses quite frequently act as the middleman, and that
seems to be what they were doing this time. The timing of the
charges is quite suspect. Bank of America and Chase both reported
quarterly profits over $3 billion, while the senate is getting ready
to vote on a Financial Reform bill. I think this bill is virtually
guaranteed to pass. Even though all the republicans are apposed to
it, I don’t think this is the hot button topic that Health Care was,
and most Americans are probably not apposed to it.

From a technical perspective this could be the catalyst for at least
a minor retracement in the markets. The markets have been overbought
from both a technical and sentiment perspective for the past few
weeks. It is possible that the profit taking could continue this
week.

Weekly Market Update 4/25/10

Well the Goldman Sachs charges do not appear to be the catalyst I
was hoping they might be. The market shrugged of the news and
performed strongly this week and nothing much else has changed.
Market sentiment is still extremely bullish. The small cap portion
of the quarterly ETF portfolio was up over 4% this week.

Market Timing – Weekly Stock Market Strategy – March 2010

Weekly stock market updates that went out to subscribers during March 2010. To receive current weekly update sent to your email, click on the FREE TRIAL link at the top of the page.

Weekly Market Update 3/7/10

It was a very good week for the markets. The SPY broke through 111.60
on Monday, and finished the week within 1% of the highs for 2010. As
I said last week once 111.60 was taken out the next logical target
would be the highs made in January. I was surprised the move came as
quickly as it did. It pains me to be on the sideline during a week
like this. I think the upside this week is probably limited. The SPY
is extremely overbought. The VIX has reached a level that has not
been seen since May 2008, shortly before the market peaked. The rally
this week came on lower than average volume. I think the rally this
past week was more likely desperate short covering than aggressive
new buyers.

Weekly Market Update 3/14/10

Another good week for the markets and I am on the sidelines. I got a
buy signal on March 4th. Unfortunately I had gotten used to being
able to get in on a retracement after this particular signal is given.
We have yet to see that retracement. My bad and I am sorry we have
missed this move.

This does bring up a good point regarding diversification. It is
never a good idea to have all your eggs in one basket. We usually
think of diversification in terms of having multiple stocks instead
of just a few. This is why I trade ETF’s like the SPY. It can quickly
become a daunting task trying to keep up with enough stocks to get a
fair amount of diversification. However there is another form of
diversification I want to discuss with you and, that is system
diversification. The SPY system I follow did an excellent job of
being out of the markets when things got ugly. But it is one system
and no one system is right 100% of the time. That is why I think it
is best to diversify with multiple systems that have worked well over
time and are not overly optimized.

I have finished the research on a quarterly ETF system that over the
last 10 years would have doubled your money. I will be adding this at
the end of the quarter for some added diversification.

Not much to say on the markets this week. Unfortunately, I cannot in
good conscience recommend buying the market when it is this overbought.
I will be waiting for something to upset this trend. If congress
manages some resolution on health care reform, that could be the
trigger. I will keep you posted.

Weekly Market Update 3/21/10

Well the market finally ended, on a daily basis, its streak of
consecutive up closes. It was a very impressive run. Bullish market
sentiment has reached a level that should limit any advance from
here. The market should be sideways or down over the next few weeks.
If we get a pullback it could give us a buy setup.

The potential market reaction from any health care reform passed is
the real wild card here. Typically the market seems to know all that
is knowable. The exception would be natural and man-made disasters.
The “buy the rumor sell the fact” saying is what keeps coming to
mind. What I mean is the market has rallied to this point. I think
any sense of finality in regards to the healthcare reform, could be
a turning point.

Weekly Market Update 3/28/10

Well the market continued its climb this week. Not even major
healthcare legislation could stop it. Well if I had not been out of
the market yet I would now be looking for an exit. Momentum has
definitely slowed and we are starting to see technical indicators
set up for a sell signal. The MACD has turned negative for the first
time since February 16th. The RSI indicator is showing a bearish
divergence. More and more sentiment indicators are reaching bullish
extremes. I know last week I said the market should be sideways to
down over the coming weeks. Going into this past week I would have
given the market no more than 2% on the upside. I would be very
surprised if the market is up over 1% at any point this coming week,
and I think we will see negative returns for the week.