So after my last post in which I described the possible triggers that would cause me to dip my toes back into the water, the market popped on news that the ECB might implement stimulus measures. Oil prices nudged upwards as well. If the market closes above 1880 tomorrow, the S&P chart would carve out a basic RSI divergence. I say basic because the divergence would be created with only two weekly bars versus a divergence over several weeks, which would be a stronger positive signal.
I assessed the daily money flow indicators and they look pretty good. So what now? Before I get into my game plan, I wanted to share with you what's on my watchlist. Now don't fall asleep reviewing this list -- Yes, they are boring dividend stocks. Here are the tickers: MO, AEP, PPL, CVX, KO, CMP, DUK, EMR, LNT, FAST, GE, GIS, GPC, JNJ, D, PEG, PAYX, PM, PG, O, SO, SE, UPS, VTR, VZ, WFC, AND HCN.
Of these stocks, I would consider buying those that have weathered the storm well (i.e., exhibited good relative strength over the past 3 to 6 months) and those that are at or below fair value. All with the exception of the following would pass this test: CVX, CMP, EMR, FAST, GIS, PEG, PAYX, O, SO, UPS, VTR, WFC, AND HCN. I would feel comfortable with this approach given the potential for further downside. Executing this plan now would raise my equity exposure by about 20%. As far as the "alpha" or growth components of my portfolio, I'll likely defer purchases to see how the market behaves absent rumors about further stimulus by the ECB.
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The purpose of this site is to share results of a trading system that I use for identifying both long-term and short-term trading opportunities. I take the time to do this because of my passion for investing and helping others succeed. The system helped me avoid the "Crash of 2007/2008" and every major correction since then. The cornerstone of my trading system are analyses of market liquidity to gauge longer-term market sentiment and equity and index options (put/call ratios) to identify short-term entry and exits.
This site is for information purposes only. Past performance of the trading system is not a guarantee of its future success. Please consider consulting a qualified investment adviser before making investment decisions.
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Thursday, January 21, 2016
Tuesday, January 19, 2016
Despite new lows, I see dollar signs!
So the market is "behaving" in a manner consistent with my macro indicator - Great! Unfortunately, one the thing that the macro indicator isn't designed to do is pinpoint the exact bottom with regard to price or time. As I mentioned in the prior post, the indicator is "saying" that a possible bottom might be in place in mid-April. With this in mind, I wanted to share my mindset in terms of next steps and in particular, the triggers that would cause me to buy into the market.
Before I get into the triggers, I wanted to amuse myself by sharing an observation. Even though I don't customarily use target levels to influence my actions, I did a Fibonacci analysis and concluded that there's strong support at the 1740 region. There's support at 1800 as well, but it doesn't appear as strong. I'm not saying that the market will correct to this level, but it is rather "convenient" that this would represent about a 18% correction and be close to the -20% figure that the media loves to refer to in judging whether we're in a bear market -- After-the-fact of course. If the market were to approach this 1740 region, it would likely flush out the weak hands who believe that a bear market is impending. I still don't believe that we are in or will experience a bear market this year. In fact, my macro indicator is saying that we will close out the year higher than the anticipated April trough. So what would cause me to dip my toes back into the water? Here goes.....
As usual, I would be looking for a weekly RSI divergence. This is my favorite long-term indicator -- to see the RSI reverse as price continues downward. In simple terms, one scenario which would cause a divergence would be for the S&P to make a new weekly low and then close (during the same week) above the prior week's close. Let's use last week as an example. During the week of January 11, the S&P hit a low of 1858 but closed at 1880. Now, if during this week, the S&P trades at or below 1858 and then closes above 1880, this would be a positive sign. I would then look to other indicators such as money flow to confirm this positive turn of events.
Another indicator that I like to use is a reversal of the trailing ATR3 (Average True Range with x3 multiplier) stop. As it stands today, a reversal over 1976 together with confirmation from other indicators would signal a buy.
So there you have it. The strongest message here is that I still believe that we won't experience a bear market. It's appears certain, however, that the market will again trade lower than the August low (1867). As I'm writing this blog, the S&P futures are trading at 1851 cash.
Before I get into the triggers, I wanted to amuse myself by sharing an observation. Even though I don't customarily use target levels to influence my actions, I did a Fibonacci analysis and concluded that there's strong support at the 1740 region. There's support at 1800 as well, but it doesn't appear as strong. I'm not saying that the market will correct to this level, but it is rather "convenient" that this would represent about a 18% correction and be close to the -20% figure that the media loves to refer to in judging whether we're in a bear market -- After-the-fact of course. If the market were to approach this 1740 region, it would likely flush out the weak hands who believe that a bear market is impending. I still don't believe that we are in or will experience a bear market this year. In fact, my macro indicator is saying that we will close out the year higher than the anticipated April trough. So what would cause me to dip my toes back into the water? Here goes.....
As usual, I would be looking for a weekly RSI divergence. This is my favorite long-term indicator -- to see the RSI reverse as price continues downward. In simple terms, one scenario which would cause a divergence would be for the S&P to make a new weekly low and then close (during the same week) above the prior week's close. Let's use last week as an example. During the week of January 11, the S&P hit a low of 1858 but closed at 1880. Now, if during this week, the S&P trades at or below 1858 and then closes above 1880, this would be a positive sign. I would then look to other indicators such as money flow to confirm this positive turn of events.
Another indicator that I like to use is a reversal of the trailing ATR3 (Average True Range with x3 multiplier) stop. As it stands today, a reversal over 1976 together with confirmation from other indicators would signal a buy.
So there you have it. The strongest message here is that I still believe that we won't experience a bear market. It's appears certain, however, that the market will again trade lower than the August low (1867). As I'm writing this blog, the S&P futures are trading at 1851 cash.
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