Wall Street Craps – 2012 Global Ebook Finance Award-Winner

STOCK MARKET OBSERVATIONS FOR January 26, 2014: The stock market corrected sharply during this past week. While I did expect a little more strength earlier in the week, the overriding message was to stay out of long positions. This proved to be wise advice as almost all sectors experienced large percentage losses during the week. From here, the majority of internal indicators are about a day away from becoming oversold enough to produce a technical bounce. But I’d still expect that the final lows for this move aren’t going to happen until at least February.

Key underlying market indicators show the following

• Investor Sentiment – Short-term = 30/Buy | Long-term = 60/neutral
• NYSE Breadth Oscillator – Ultimate Indicator – 32 (near buy)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 31 (near buy)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 27 (Buy)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 31 (near buy)
• S&P 100% Above 200 Day Moving Average – Ultimate Indicator – 20 (Buy)
• Stock vs. Bond Indicator – Ultimate Indicator – 36 (neutral)
• Risk On/Risk Off Indicator – Ultimate Indicator – 23 (Buy)
• Volatility Indicator – Ultimate Indicator – 19 (Buy)

Another way to look at the general market is to see if there are matching oversold “Full Stochastics” readings on the major ETF broad-based averages. You will notice that all major intermediate bottoms start after oversold reading. The current readings require more time before reaching oversold levels. Note: The QQQ does not always reach oversold readings at bottoms due to its high relative strength:

• DIA – Full Stochastic – 37 (neutral) on lagging red line
• SPY – Full Stochastic –  61 (neutral) on lagging red line
• QQQ – Full Stochastic – 83 (neutral) on lagging red line
• IWM – Full Stochastic – 79 (neutral) on lagging red line

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My advice for traders and investors is to remain of the sidelines and let the market set itself up for a possible bottom in the intermediate term. The majority of internal indicators have moved into buy readings but need more time in the misery zone. Expect a short-term bounce early next week and then a retest 5 to 10 days after those previous lows. The time to take a chance on the long side is when weakness occurs amid obvious bad news on the retest of previous lows. That should come in February most likely.

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Note: Stock that have moved into their buy range according to the Money Flow Indicator include the following: General Electric and Berkshire-Hathaway.

STOCK MARKET OBSERVATIONS FOR January 21, 2014: The stock market appears to be on the last leg up of its long bullish trend. The rally of the past week has been narrow in breadth which suggests that the next closing high for the Dow Jones Industrial Average will be its last. Look for strength during this coming week as an opportunity to sell or even go short as a speculation. The overly bullish sentiment of the past few months has set the market up for a possible fall of some significance. If anything, this is not a time to add to new long equity positions.

Key underlying market indicators show the following

• NYSE Breadth Oscillator – Ultimate Indicator – 47 (neutral)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 46 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 54 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 49 (neutral)
• S&P 100% Above 200 Day Moving Average – Ultimate Indicator – 57 (neutral)
• Stock vs. Bond Indicator – Ultimate Indicator – 50 (neutral)
• Risk On/Risk Off Indicator – Ultimate Indicator – 35 (neutral)

My advice for traders and investors is to remain of the sidelines and let the market set itself up for a possible top in the near term. The majority of internal indicators have  moved into neutral readings while the Dow looks like it wants to challenge the old highs. This is usually a sign of an important top and something that investors want to avoid being long equities. Instead, this is one of those times where being in cash is probably the wisest place to be for now.

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Note: The behavior of a big Dow stock like General Electric since the last day of 2013 suggests that it needs to correct back to its 200-day moving average.

STOCK MARKET OBSERVATIONS FOR January 6, 2014: The stock market may have reached its internal high on New Years Eve. A new closing high 5 to 10 trading days after that date could very easily be the final external high for this major rally. But with most professional traders sitting out last week, the stock market can still do almost anything in either direction this coming week. Expect at least one more new high in January to occur before any kind of significant decline begins.

Key underlying market indicators show the following:

• Investor Sentiment – Short-term = 50/neutral | Long-term = 70/SELL
• NYSE Breadth Oscillator – Ultimate Indicator – 50 (neutral)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 43 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 62 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 76 (SELL)
• S&P 100% Above 200 Day Moving Average – Ultimate Indicator – 49 (neutral)
• Stock vs. Bond Indicator – Ultimate Indicator – 57 (neutral)

My advice for traders and investors is to remain of the sidelines and let the market set itself up for the next major move. The internal indicators have mostly moved back into neutral readings after the declines on Thursday and Friday. The current list of oversold Blue Chips stocks and Exchange-Trade Funds that are near the lower range of their Money Flow Indicator and should be monitored on further weakness include: Apple , IEF, and MSFT. With such a short list of buying candidates, it implies that the market needs to correct further before moving to the upside.