Wall Street Craps – 2012 Global Ebook Finance Award-Winner

STOCK MARKET OBSERVATIONS FOR November 2, 2014: The stock market has fulfilled its “V-Shaped Bottom” with last week’s historic run to the upside. However, the new closing high on Friday is still unconfirmed by a number of major indicators. This coupled with several “overbought” readings in key underlying indicators would suggest that the upside may be limited right now. It’s probably too late to buy into this rally without experiencing some sort of sideways correction soon, but be ready to buy any dips for a resumption of this long bull market.

Key underlying market indicators show the following:

• NYSE Breadth Oscillator – Ultimate Indicator – 71 (overbought)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 76 (overbought)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 86 (overbought)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 91 (overbought)
• S&P 100 % Above 200 Day Moving Average – Ultimate Indicator – 82 (overbought)
• S&P Bullish Percent Indicator – Ultimate Indicator – 83 (overbought)
• Risk On/Risk Off Indicator – Ultimate Indicator – 59 (neutral)

Personal Note: A good student of the market needs to update their strategy over time in order to play the game more effectively. The reason is that the stock market game is now more volatile than ever before. The new players in the game are quicker, smarter, better equipped, more competitive, and forever looking for an “edge” in order to make money in this market.

As an individual do-it-yourself investor, the new strategy for today’s market is to make smaller bets while buying the dips and selling the rips – and thus, holding your trading positions for a shorter time. This applies to “playing” the stock market for fast money with less risk.

As far as “asset allocation” and the vehicles for “security assets” and “growth funds,” the best funds for long-term money are in the higher-yielding broad-based low-fee Exchange-Traded Funds offered by Charles Schwab and Vanguard. The annual fees charged by Exchange-Traded Funds when compounded over time can amount to significant cuts in your overall returns. This is especially true when it comes to large positions that are held for a long time – as in “Security Assets” that they are described in my book, Wall Street Craps: How to Play Today’s Hot & Cold Stock Market For Fast Money With Less Risk.

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My advice for traders and investors is let the market set-up for a dip in the near term in order to establish new long positions. Rather than a simple bounce in a topping pattern, this rally appears to me to be a new leg of a revived bull market. Otherwise, it might be less risky to simply wait for the seasonal correction during mid-December in order to establish or add to long positions. Don’t get antsy and remember that the “casino is always open!”

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STOCK MARKET OBSERVATIONS FOR October 19, 2014: The stock market experienced a sharp decline and a possible capitulation on Wednesday of last week. Will this turn out to be another “V-Shaped Bottom” or just a bounce? That’s a big question that no one really knows the answer to and can only speculate. With the majority of indicators below showing “neutral” readings by the close of Friday, the stock market is in a position of going in either direction.

Key underlying market indicators show the following:

• NYSE Breadth Oscillator – Ultimate Indicator – 57 (neutral)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 59 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 37 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 39 (neutral)
• S&P 100 % Above 200 Day Moving Average – Ultimate Indicator – 19 (oversold)
• Risk On/Risk Off Indicator – Ultimate Indicator – 59 (neutral)

Personal Note: I expected the NYSE Breadth Oscillator and Nasdaq Breadth Oscillators to have reached “oversold” readings during this last decline, but they never got close in terms of their respective Ultimate Oscillators. So my bet is on the market to retest last Wednesday’s bottom in the coming week after a sharp decline on Monday and Tuesday. If that decline looks like it’s going to be a successful retest, I’d be willing to put a few small “place bets” on some broad-based ETFs while trying to catch that proverbial “falling knife.”

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My advice for traders and investors is let the market set-up for a retest of last Wednesday’s intraday low. If that retest comes with glaring technical divergences and “obvious bad news”, we could experience a sharp rally worth trading in broad-based Exchange-Traded Funds like DIA, QQQ, IWM, SPY, and maybe even SSO.

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STOCK MARKET OBSERVATIONS FOR August 2, 2014: The stock market experienced a broad correction last week that took most oscillators to deep “oversold” readings. We could be just one day away from a good bounce right here. But at the same time, there is the danger of going into a “flash crash” sometime in the next couple of weeks. While a small amount can be risked for a sharp short-term bounce, I am more inclined to let the market run its course to the downside with a better bounce off the 200-day moving averages of the major indices. That would require 200 more points to the downside in the Dow Jones Industrial Average.

Key underlying market indicators show the following:

• NYSE Breadth Oscillator – Ultimate Indicator – 15 (oversold)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 32 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 9 (oversold)
• NYSE % Above 150 Day Moving Average – Ultimate Indicator – 9 (oversold)
• S&P Bullish Percent Indicator – Ultimate Indicator – 62 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 20 (oversold)

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My advice for traders and investors is be on the lookout for a “flash crash” scenario in the next couple of weeks. We may get a golden opportunity to buy soon if you’re out of the market now and in cash. But the market could experience sharp swings in either direction. My guess is that August 2014 will be the month of an important trading bottom.

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MARKET OBSERVATIONS FOR December 22, 2013: The stock market rallied right from the start of last week and didn’t give traders a chance to buy into any weakness. As of Friday December 20th, the Dow Jones Industrial Average has hit 3 consecutive new closing highs. The first week of 2014 may turn out to be a top of some significance, so traders and investor beware! But until we get a key interday reversal to the downside and a weak retest of the highs, my bet is on the market to continue higher.

Key underlying market indicators show the following:

• Investor Sentiment – Short-term = 60/neutral | Long-term = 60/neutral
• NYSE Breadth Oscillator – Ultimate Indicator – 75 (SELL)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 68 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 66 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 68 (neutral)
• S&P 100% Above 200 Day Moving Average – Ultimate Indicator – 57 (neutral)
• Stock vs. Bond Indicator – Ultimate Indicator – 71 (SELL)

For now, my advice for traders and investors is to remain of the sidelines and let the market set itself up for the next major move. Oversold Blue Chips stocks and Exchange-Trade Funds that are near the lower range of their Money Flow Indicator and could be bought on weakness include: Starbucks, Microsoft, Verizon, Japan iShares, and China iShares.

MARKET OBSERVATIONS FOR December 7, 2013: The stock market had a mild 5-day correction after hitting its 13th consecutive new high in the DJIA. Yesterday (Friday Dec. 6th), the market snapped back with a rally that puts it into position to retest the previous week’s highs. That retest will occur early next week and could produce a new closing high. My hunch is that this retest will fail and clear the way to a more substantial correction shortly afterwards.

Key underlying market indicators show the following:

• Investor Sentiment – Short-term = 50/neutral | Long-term = 70/sell
• NYSE Breadth Oscillator – Ultimate Indicator – 41 (neutral)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 43 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 37 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 44 (neutral)

For now, my advice for traders and investors is to remain of the sidelines and watch for short term buying opportunities in alternative oversold asset classes. Those would include real estate (IYR), long-term Treasury bonds (TLT), emerging markets (EEM), silver (SLV), and gold mining (GDX). Other stocks that could experience tax-loss selling in December and may be worth picking up for longer-term holdings include: IBM, CSCO, and AT&T.

MARKET OBSERVATIONS FOR November 24, 2013: The stock market continues to push upwards without a hint of an extended correction. This past Friday marked the 10th consecutive new high of this current rally from its October 8th low. This pattern of new consecutive highs should continue until it reaches 13 which could occur in another week. About the only thing that could cause the change in momentum to the downside would be investor expectations of new Fed tapering. Otherwise, the lone prudent investment choice will continue to be the asset class of equities.

Key underlying market indicators show the following:

• Investor Sentiment – Short-term = 50/neutral | Long-term = 70/sell
• NYSE Breadth Oscillator – Ultimate Indicator – 54 (neutral)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 58 (neutral)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 43 (neutral)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 51 (neutral)

For now, my advice for traders and investors is to remain of the sidelines and watch for short term buying opportunities in alternative oversold asset classes. Those would include real estate (IYR), long-term Treasury bonds (TLT), emerging markets (EEM), silver (SLV), and gold mining (GDX). I strongly discourage trading leveraged, inverse ETFs for downside action because of their tricky nature, limited history, and deceiving internal indicators. But for those who insist on dabbling in this dangerous area with small bets for short holding periods, my two choices would be (TZA) and (SDS) based on liquidity and volatility.

MARKET OBSERVATIONS FOR September 13, 2013: The stock market has rallied to a point where it is overbought and about to form the right shoulder of a “head and shoulders top.” While it is still entirely possible for the market to continue its upward march towards new highs, it also could be near its end in terms of time. After a 17 session decline, the current rally will match that time by the end of next week. Since I never recommend going short or buying inverse ETFs, this is a time to be out of the market and waiting for a deeply oversold condition to establish new long positions in the weeks ahead.

Key market indicators show the following:

• Investor Sentiment – Short-term = 50 neutral/Long-term = 60 neutral
• NYSE Breadth Oscillator – Ultimate Indicator reading of 62 – after topping over 70
• Nasdaq Breadth Oscillator – Ultimate Indicator reading of 59 – after topping over 70
• Risk On/Risk Off Indicator – Ultimate Indicator reading of 49 – neutral
• 21-Day Equity-Only Put-Call Ratios – Mixed signals – one is a buy, the other a sell
• NYSE Summation Index – Recently bottomed and is rallying with more room to the upside

For now, my advice for traders and investors to get out of the market and wait for a better risk/reward environment. The September/October period is usually a time of increased volatility which could produce a deeply oversold condition in which to take new positions.

MARKET OBSERVATIONS FOR August 17, 2013: The stock market had a big drop last week as it heads into its August bottom. From this bottom, we should see a new rally which will either form the right shoulder of a “head and shoulders top” or challenge the early August highs. But so far, this decline has been a confusing one to analyze and trade effectively. Time and cycle studies indicate that Monday or Tuesday should see the low for August, but it remains to be seen what kind of strength, if any, awaits investors and traders. And despite last week’s weakness, it is still entirely possible that the decline could resume in earnest. So watch your step out there, play it tight to the vest, and keep your bets (position sizes) small.

Key market indicators show the following:

• Investor Sentiment – Short-term = 40 neutral/Long-term = 50 neutral
• NYSE Breadth Oscillator – Ultimate Indicator reading of 33 – close to oversold
• Nasdaq Breadth Oscillator – Ultimate Indicator reading of 35 – close to oversold
• NYSE Summation Index – Heading downwards towards a mid-to-late August bottom

For now, my advice for traders is to wait for the next oversold condition and then take positions for an upside move into the Fall. But last week’s unusual TRIN readings on this current decline, shows an absence of selling. This makes it anyone’s guess as to how much further the market will drop in the coming week. Perhaps this is one of those times when it’s best to just stand aside and let the market set itself up for a better percentage move.

“Do you know what happens in a bull market? Prices open up lower and then go up for the rest of the day. In a bear market, they open up higher and go down for the rest of the day. When you get to the end of a bull market, prices start opening up higher. Prices behave that way because in the first half hour it is only the fools that are trading [pause] or people who are very smart.”

Source: Schwager, Jack D. (2012-04-25). Hedge Fund Market Wizards. John Wiley and Sons. Kindle Edition.

“Staring at the screen all day is counterproductive. He believes that watching every tick will lead to both selling good positions prematurely and overtrading. He advises traders to find something else (preferably productive) to occupy part of their time to avoid the pitfalls of watching the market too closely.”

Source: Schwager, Jack D. (2012-04-25). Hedge Fund Market Wizards. John Wiley and Sons. Kindle Edition.