Market Timing – Weekly Stock Market Strategy – August 2010

Weekly stock market strategy updates that went out to subscribers during August 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 8/1/10

The market finished the week basically where it started. The bulls and bears are in a tug of war, and the outcome has yet to be determined. I would say that positive earnings are what is driving the bulls. While weak economic numbers and, a unclear future, are what is guiding the bears. I am leaning slightly toward the bear camp. If the SPY can manage a couple closes over 112, I would have to reconsider my stance. Right now I am happy watching the tug of war from the sidelines.

Weekly Market Update 8/8/10

The SPY managed a couple closes over 112 this week. These higher closes were able to get the 14 period RSI to close over 60 on the daily charts. This triggered my RSI buy setup that will move our intermediate term market call to bullish if the SPY can close at 113 or higher.

Except for Friday’s price action most of the week was spent trading between 112 and 113 on the SPY. Friday’s action showed some early weakness on the monthly employment figures, but manage to recover most of the day’s losses near the close. The inaction early in the week was a result of traders waiting on Friday’s employment data. The hesitation in the market is due to uncertainty as to weather we will see a “V” or a “W” shaped recovery. A “W” shaped recovery is a double dip and seems like the most likely outcome. This is not a forgone conclusion though and has a great deal to due with the current market uncertainty. Traders will be looking to various economic reports to give signals as to which type of recovery is most likely. Increased volatility in the coming months is almost a certainty.

Weekly Market Update 8/15/10

Talk about pennies from heaven. The SPY closed Monday at 112.99, literally a penny from where I thought I would have to turn my intermediate term call to bullish. I don’t know if that was dumb luck or not but I am glad we did not go long before the sell-off began. The indices took a hit this week, losing 3-5%. The market is now oversold going into the weekend. The question is, are we oversold enough to find support or, will this level just be a speed bump on the way to lower prices? If we do not start seeing some positive economic numbers, I will be leaning toward the speed bump scenario.

Weekly Market Update 8/22/10

The markets were mixed this week. On a short-term basis we have found a range between 107 and 111 on SPY. The 107 level has become a kind of line in the sand. If the market cannot hold this level the July lows near 102 will be tested. On the other hand we are somewhat oversold here so anything is possible. We may have to see how the economic reports come out this week. Lately they have pointed toward a weaker economy.

Weekly Market Update 8/29/10

The 107 level on the SPY was breached on Tuesday. It looks like the 104 level is going to act as support. I thought that since that level was broke in early July it might not act as support this time around. Judging by Friday’s price action I guess I was wrong.

The stock market is oversold on many levels but, one thing is bothering me. We haven’t had a high volume capitulation like sell-off. When everyone seems to have given up then we can start to look for at least a bounce. Friday’s unemployment numbers has the potential to set the trend for the next few weeks. Just keep in mind the initial move is sometimes corrected by the end of the day.

Market Timing with Moving Average Envelopes

I was reading Barron’s last week. One of the articles I read made reference to a simple system for timing the market. This market timing system was simply a 200 day moving average with a 5% band above and below the moving average. A buy signal occurs when the market closes above the upper band. The lower band is used to exit long positions.

The system generated two signals over the last two years. It generated a sell signal on January 4, 2008 and kept us out of market until a buy signal was generated July 15, 2009. This is just one more simple system that will keep you out of the market during severe market declines.

This is just one more system that we will be tracking at BuyandHoldisDead.com. Sign-up now for your frequent free weekly updates.

Trend Following System

This Trend Following System is derived from the work of Constance Brown. In her book Technical Analysis for the Trading Professional she discusses RSI trading zones for both bull and bear markets. RSI (Relative Strength Index) is a very popular indicator developed by Welles Wilder. It measures gains vs. losses over a defined period and is traditionally used to signal overbought and oversold markets. The formula can be found on several sites on the web so I won’t go into detail here. What Constance points out in her book is that in a bear market the RSI will not typically trade above 60 and in a bull market the RSI will usually stay above 40.

What I have done with this is applied a 14 period RSI to a weekly chart of the SPY. SPY is ETF of the S&P 500. A long signal is generated when the RSI closes above 60 for the week. We will remain long until the RSI closes below 40 for the week. Signals are generated on Friday and trades were taken at the open on Monday. I realize that in most 401k accounts trades are done on the close. This should not significantly change the results.

Caution: This is a rather large file and may be slow in loading.

SPY CHART W/ RSI Trend Following System

 Trend Following System Trade Dates 

Past performance is not necessarily an indication of future performance. Hypothetical or simulated performance results have certain inherent limitations. See full disclosure on disclosure page.