Wall Street Craps – 2012 Global Ebook Finance Award-Winner

MARKET OBSERVATIONS FOR MAY 27, 2012:The stock market has been experiencing a bounce off of a very oversold condition in terms of breadth and sentiment. However, the extent of the decline in terms of price has not been significant. With the last closing high for the Dow Jones Industrials being on May 1, I go by the understanding that a major top and major bottom do not occur during the same month. Therefore, a low worth buying still appears to be a few weeks away.

In addition, a major Bradley Turn Date is scheduled for June 12. (Note: Bradley turn dates can be either indicate tops or bottoms.)

Since the May 18th lows, the stock market has had a classic “Dead Cat Bounce” which hasn’t gone up much at all. What has happened is that breadth and sentiment indicators have had a chance to relieve their downside pressure and chew up time. In fact, the short-term sentiment readings are neutral according to SentimenTrader.com which signifies that no action is required for the next few days.

While a successful retest of those lows could occur this coming Tuesday, the more likely scenario is for the market to resume its decline into a mid-June deeply-oversold low.

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In regards to previous comments about Apple (AAPL), this current bounce off of the 1/3 retracement of its prior rally may give way to a 50% retracement to the price of $503. I would also be a strong buyer of this stock if it touches its 200-day moving average which currently stands at $464. This stock remains the most undervalued large-cap growth company in the entire stock market and certainly worth owning on the next major rally either on its own or through ownership in the QQQs.

FROM APPLE EXPERT, EDITOR OF THE BULLISH CROSS ADVISORY & HEDGE-FUND MANAGER ANDY ZAKY: The two key levels of support for Apple’s stock in the intermediate term are $537 (32.8% retracement) and $503 (50% retracement) a share. We believe Apple presents with a unique buying opportunity at $537 and an extraordinarily rare opportunity at $503 a share. While we don’t believe the stock will ever see $503 a share, if Apple does reach that level, it would be the equivalent of $310.50 in June 2011 or $80.00 a share in March 2009.

Investors tend to over-complicate things. Apple (AAPL) will undoubtedly see $750 a share by January 2013 and will likely see $1,000 no later than the fall of 2013.

Thus, we believe the best thing to do is just to go in and buy now, ride any potential drawdown to $537 a share, ignore all of the nonsense you are likely to hear on the way down and beat Wall Street by being smart enough to realize what they often do not. And that is the fact that Apple will inevitably sell 100 million iPhones a quarter within the next few years. When that happens, Apple will be trading far north of $1,000 a share. Who cares about a $30 – $50 drawdown when there is over $500 in upside for the stock over the next year or so. Don’t make things so complicated. Just go in and buy.

Comment: The 200-Day Moving Average for AAPL is currently around 451 and rising. That would also be another place where the price of the stock may touch on the correction down. There is also a price gap between 425 and 450 that may end up being filled. This remains a legitimate possibility and one that fundamentally-oriented investors in Apple will find hard to swallow.

On the shorter term, the Money Flow Indicator has a reading of 32 and needs to close below 20 in order to generate a buy signal. This one indicator allowed me to take a position in Apple on the day of bottom in June 2011 just over $310 a share. So be ready to make a small side-bet based on this one indicator if this should occur in the near future.

MARKET OBSERVATIONS FOR APRIL 21, 2012: The stock market’s breadth (advancing issues verses declining issues) continues to correct while prices try their best to rally. This sets up a market that is neither overbought or oversold enough in terms of breadth, sentiment, or price to make new buying decisions in the near term.

The Wall Street Craps approach calls to resisting the urge to short the market and to keep one’s powder dry in cash while waiting for the next buying opportunity. That first opportunity to take pilot positions may occur in the next week or so.

Since the last closing high in the Dow Jones 30 Industrial Average occurred on April 2nd, the more likely buying opportunity would be in the month of May at the earliest. This is based on the concept that selling opportunities and buying opportunities do not occur during the same month. That’s because it takes time to generate a significant shift in investor sentiment – a necessary ingredient for valid market signals.

Side-Bet Notes: Google (GOOG) is now approaching a possible buying opportunity as the Money Flow Indicator hit the 23 level on Friday. A move to the 15-20 range would mark a likely place for a short-term trading bottom. Apple (AAPL) still has much further to go before reaching a Money Flow Indicator buy signal.

MARKET OBSERVATIONS FOR APRIL 8, 2012: The stock market continues its correction into a late April to May bottom. The short side of the market continues to be tricky (as always). So it’s best to stay out of the market and on the sidelines – keep your powder – wait for a good buying opportunity that’s likely to come soon.

The McClellan Summation Index continues to show the market in a clear downtrend heading towards lower prices. When the time is ripe, we will be looking to take some large bets in a diversified portfolio of dividend-paying, Blue Chips equities in the form of actively-traded Exchange-Traded Funds. In addition, we will also look to take a solid position in the QQQs which are likely to be the speculative leader in the next rally.

My simple idea is to place 80% of trading funds designated for equities in SPY and DIA and 20% in the QQQ.

As far as total funds are concerned, I would place 80% in equities and 20% in high-yielding corporate bonds.

But first, the market needs to feel more pain! Maximum pain needs intensity, frequency, and duration. We haven’t reached that point yet.

MARKET OBSERVATIONS FOR MARCH 24, 2012: The stock market appears to be in a correction phase moving in the direction of the next buying opportunity. Most internal indicators are mid-range and don’t point in any particular direction. While some analysts will look at last week’s Apple dividend announcement as a sign of an approaching top, I would ignore the urge to go short now and wait instead for one last bull run into late April and May.

The McClellan Summation Index continues to show the market correcting heading towards lower prices. The trick is whether the March 6th bottom was an early cycle bottom or not. My guess is that the March 6th bottom will be tested shortly (as early as late next week) and prove to be a place for a good bounce up or even continuation of the recent bull run.

For now, the best advice is to keep your powder dry on the sidelines and let the market set itself up for its next move up. Betting the short side of the market will probably be tricky and distract you from making more significant bets when the market eventually bottoms. Remember that there’s a lot of money still out of the market or leaving the bond market and waiting to get in stocks or equities.

MARKET OBSERVATIONS FOR MARCH 10, 2012: The stock market experienced an interesting week where it corrected into a short-term oversold bottom and then rebounded in a 3-day rally. I would expect the market to retest Tuesday bottom in the next week.

Cycle studies point to a possible bottom around the March 16th time period. Also a major Bradley Turn Date is scheduled for March 19. (Note: Bradley turn dates can be either indicate tops or bottoms. If we get a weak rally to a new closing high, then this Bradley turn date would indicate a top. On the other hand, if we get a successful retest of last Tuesday’s bottom, then this Bradley turn date would indicate a bottom.)

So for those who want to go long in this market, a bottom worth buying could arrive either this coming week or next but only after there has been a successful retest of last Tuesday bottom.

MARKET OBSERVATIONS FOR MARCH 3, 2012: The stock market continues to hover in a tight trading range near recent highs. I wouldn’t be surprised if the Dow Jones 30 Industrials makes one more attempt at a closing new high before starting its overdue correction.

My 5-day retest rule indicates that the Dow Industrials will make an attempt at a new closing high on either Tuesday or Wednesday in the coming week. If that new high comes on weak volume and is largely unconfirmed by strength in the Dow Transports, QQQ, and overall breadth, it will most likely mark the intermediate high of this move. (Note: If the new high comes with a measure of strength, then the market can delay its topping formation for still another week)

Small side bets (called $5 bets) can be made in Exchange-Traded Funds with the symbols SDS and TZA for those who dare to play the short side of the market on a weak close during the last hour of trading on a new closing high in the Dow mid-week. Otherwise, a stock market bottom worth buying looks to be waiting for sometime in mid-to-late March at the earliest.

The McClellan Summation Index is showing a well-defined topping pattern with a time cycle bottom occurring about 4 weeks away. It’s important to remember that major selling opportunities and buying opportunities do not occur during the same month. It takes time to generate a significant shift in sentiment – a necessary ingredient for valid market signals.

MARKET OBSERVATIONS FOR FEBRUARY 11, 2012: The stock market continues to climb the proverbial wall of worry without much of a break in the form of a correction. But that may soon change.

A key reversal from Apple at mid-week, major non-confirmations from the Dow Transports, and 2 consecutive new closing highs at clearly defined resistance levels, may mark a point of market exhaustion. If the Dow Jones Industrials should make another closing high on Tuesday without confirming strength from other key indicators, it could mark the end of this rally phase and an intermediate term top of this market. But until the stock market sets up in this manner, it is better to let the rally run out its course.

Small side bets (called $5 bets) can be made in Exchange-Traded Funds with the symbols SDS and TZA for those who dare to play the short side of the market on a weak close during the last hour of trading Tuesday. Otherwise, a stock market bottom worth buying looks to be waiting for sometime in March in all likelihood.

MARKET OBSERVATIONS FOR JANUARY 21, 2012: The master strategy for winning at Wall Street Craps is to always play the game correctly by making only smart percentage bets at the optimal time period in the appropriate amounts relative to risk. Do these key tasks consistently as well as manage your overall bankroll wisely and “Know Thy Self” so that you can adjust your play according to your unique individual temperament.

• Sentiment Signals = solidly optimistic both long and short term – still room for one more pop to the upside – signaling that we are very close to some sort of top

• Breadth Signals = breadth indicators are moderately overbought – overdue for a swing to the downside but can still go in any direction short term

• High Yield Bond Signals = topping out and due for a stock market move down

Comment: The stock market is at the top of its trading range. There were 4 consecutive new highs recorded last week making the market vulnerable to an “exhaustion high” early next week. This is definitely not a time to be buying as the risk is deemed as being too high. The market may not be ready to go down right now but it’s upside is limited. It’s debatable whether the market will hover at these levels or go immediately into a correction. We are likely to see a “buy on dips” mentality if we do go down from here – making the first correction a short one. That would lead to a retest of the highs in February.

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“Markets top not because of smart sellers it’s just an absence of buying. And conversely at markets bottom, markets bottom not because of smart buyers it’s an absence of selling. So that’s our whole thesis and that’s our approach to analysis.”

Tom DeMark ~ Investment Advisor and Market Timing Expert

KNOW THY SELF & ADJUST YOUR PLAY ACCORDINGLY: People have deeply ingrained core values that are centered on the issue of money. Your ability to win consistently at Wall Street Craps is largely controlled by these underlying core values. So “Know Thyself” and play accordingly.

The famous Greek maxim “Gnothi se auton” (“Know Thyself”) is inscribed at the Temple of Apollo at Delphi. For centuries, people seeking advice from the oracle at Delphi would read the inscription and throughout the years philosophers offered this same advice to their students — and I’m doing the same thing here. If you’re a person who has deep issues with self-esteem, impatience, fear, indecision, doubt, insecurity, or worry, then trading the stock market will probably not be a good fit for you. That’s because your natural habits or patterns of thinking will likely resurface under the stress of trading funds in your account.

A good lesson that one can learn about their own nature is summed up in the following line: “The way you do anything is the way you do everything.” So if you’re lazy and undisciplined in one area of your life, it’s highly likely that you will be lazy and undisciplined in your stock market trading. And in the latter case, your chances of succeeding in a challenging game like the stock market are very slim.

Once you understand more about your own natural behavior, it is perfectly okay to either: (1) take a healthy break from stock market trading, (2) quit playing the game all together, or (3) continue dabbling in the stock market with only small amounts of money, simply for the love of the game.

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“The worship of money and the condemnation of money exist side by side, sometimes even within the same individual.”

Herb Goldberg and Robert T. Lewis ~ Authors of Money Madness (2000)