STOCK MARKET OBSERVATIONS FOR May 18, 2014: The stock market advanced to new highs during the early part of last week. The small rally on Friday sets up the market for another retest of the previous high. Whether it closes above or below the previous high, the stock market appears to be losing its upside momentum and provides another chance to sell into strength. Overall, this is not an oversold, undervalued, or unpopular market to buy. If anything, it is one to sell.
Key underlying market indicators show the following
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My advice for traders and investors is to be largely in cash while the market sets itself up for its next big move. With most indicators showing “neutral” reading, a possible scenario is for the market to decline from here into an oversold condition. That would present nimble traders with a short-term buying opportunity to ride still further to the upside. But for now, it’s a “wait and see” policy that is most prudent.
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STOCK MARKET OBSERVATIONS FOR March 9, 2014: The stock market moved to only 120 points below its previous closing high recorded on December 31, 2013. Meanwhile, the Dow Jones Transportation Average moved to new highs this past week. This sets up a likely confirmation according to the classic interpretation of the Dow Theory. But this could become a trap for unsophisticated investors and throw off the majority by being a top instead. So be careful and avoid making new purchases here.
Key underlying market indicators show the following
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My advice for traders and investors is to remain of the sidelines and let the market set itself up for either a possible top on a new closing new in the DJIA or a short-term trading bottom on an oversold condition. With the majority of internal indicators in “neutral” positions, the stock market can go either way with equal odds.
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STOCK MARKET OBSERVATIONS FOR March 2, 2014: Last week, the stock market reached the upper end of its trading range. In fact, many people would argue that the market has broken out to new highs. But while several stocks and indices have advanced to new highs, many traditional sectors such as Industrial, Transportation, Retail, and Financial have lagged badly in this current rally. Unless strength rotates into these weaker core areas, I wouldn’t be surprised to see the DJIA make a new token closing high and then begin an immediate correction of major proportions.
Key underlying market indicators show the following
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My advice for traders and investors for this week is this: move to the sidelines and let the market correct into an oversold condition. Then add to long positions in strong sectors for a final ride to the top. The majority of internal indicators are mixed as of today. That means that the market has an equal chance to go in either direction. But the only prudent low-risk strategy to capitalize on this market is to buy on the next oversold condition. That may take another week or so to set up properly.
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STOCK MARKET OBSERVATIONS FOR February 17, 2014: The stock market quickly reached overbought levels by the end of last week. While this rally has been impressive by its straight-up action, it could still stall out in this current price range. The lagging performance of the Dow Jones Transportation Average is setting up a classic Dow Theory Sell Signal should the DJIA reach new highs while the Transports clearly don’t. It’s probably too early to short the market (I don’t recommend this as a wise strategy) but it certainly isn’t a time to go long the broad market.
Key underlying market indicators show the following
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My advice for traders and investors for this week is this: look for a chance to sell on any strength during the coming week. The majority of internal indicators are in overbought positions now. The optimal time to sell is when the majority of indicators have started to come down after reaching their highest points. That means that some additional rallying could occur over the short-term. But selling into strength after an extended rally is usually a good strategy. If a small correction starts this week, then you may have another chance to hop on-board the long side in well-chosen individual stocks. Remember that “overbought” does not necessarily mean “sell.” It means “do not buy now.”
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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
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.
MARKET OBSERVATIONS FOR December 29, 2013: The stock market rallied to 6 consecutive new highs before its slight drop on Friday. This certainly qualifies as confirmed strength but also a possible sign of an internal top. I would expect the strength to continue for a few more days with a good chance of a correction starting at the beginning of the New Year. This market is now overbought, over-loved, and overextended as the indicators below are signaling. This isn’t a time for buying, it’s a time for selling.
Key underlying market indicators show the following:
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 current list of oversold Blue Chips stocks and Exchange-Trade Funds that are near the lower range of their Money Flow Indicator and could be bought on further weakness include: Ford, TLT & FXI. This short list is another indication that very few issues are in good buying ranges. I noticed that bellwether stock, Apple, may have made a final double top on “obvious good news” marking the end of its rally.
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MARKET OBSERVATIONS FOR December 14, 2013: The stock market declined this past week after its failed attempt at a new high following the previous Friday’s strong rally. This sets the market up for a short-term bottom this coming week. My best guess is that this bottom will come between Tuesday and Thursday. I would suggest buying into weakness on any of these days with small pilot positions in anticipation of a year-end rally. In order to do this, you’ll have to ignore any bad news.
Key underlying market indicators show the following:
For now, my advice for traders and investors is to remain of the sidelines and watch for a short term buying opportunity in the coming week. This bottom would set up the traditional “Santa Claus Rally” into the New Year. Oversold stocks would include IBM, Verizon, AT&T, and Newmont Mining.
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MARKET OBSERVATIONS FOR October 27, 2013: The stock market has been marching upwards for the past 13 trading sessions. During this coming week, the time of this rally will have matched the previous downleg and thus, be ripe for a pullback. I would not be surprised to see a new closing high in the Dow Jones Industrial Average sometime next week which would mark the high of this phase of the rally. But current readings of key breadth indicators show that the general market has already begun its correction. That could mean that the correction will be sharp in terms of price, but short in duration.
Key market indicators show the following:
For now, my advice for traders is to be on the sidelines as the stock market peaks this coming week. Since I don’t see a good way to participate on the downside, I’d prefer to wait until the market becomes oversold and then play the next rally. Retests of highs and lows has not been characteristic of this market. Instead, the stock market goes up until it runs out of time and then retreats into a similar reversal. Playing the extremes in breadth oscillators seems like the best way to go….. especially to the upside. And in this market, playing the downside has been a study in frustration and capital loss.
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f a stock is extremely oversold—say, the RSI is at a three-year low—it will get me to take a closer look at it. Normally, if a stock is that brutalized, it means that whatever is killing it is probably already in the price. RSI doesn’t work as an overbought indicator because stocks can remain overbought for a very long time. But a stock being extremely oversold is usually an acute phenomenon that lasts for only a few weeks..”
Source: Schwager, Jack D. (2012-04-25). Hedge Fund Market Wizards. John Wiley and Sons. Kindle Edition.
MARKET OBSERVATIONS FOR August 10, 2013: The stock market made a new closing high 5 trading sessions ago. Since that time, it has been in a slow, choppy decline where there has been an absence of buyers rather than an abundance of sellers. The previous high was largely confirmed by other major indicators and suggests that another “retest” rally will be made in the coming week. But the NYSE Summation Index is making the case for a significant low coming up in a couple of weeks.
Key market indicators show the following:
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 if the market were to rally here into an unconfirmed new high, I’d be wary that the highs for the year have been achieved and to stand aside in a defensive position of cash. Thus far, playing the short side of the market has been difficult to trade and is better off avoided by most people.
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The indicators for Apple (AAPL) read as follows:
- Current price: 454
- Relative Strength Indicator = 61 heading down
- Ultimate Indicator = 59 heading down
- Money Flow Indicator = 50 heading down
- 50-Day Moving Average = 435
The stock of Apple appears to have achieved its upside objective for this cycle in terms of price. I would wait to take new positions in the stock whenever any of the indicators (RSI, Ultimate, Money Flow) reach oversold readings. Of these, the Money Flow Indicator has been the most reliable one for swing trading. I’ve surmised that trying to chart this stock purely from a price standpoint has been an exercise in futility. The best trading results for the past year have been by simply relying on the Money Flow Indicator to identify low-risk buying areas to go long.