Market Indicators (week of April 29)

Each weekend, I will list signals from the most popular market indicators. *

(A full list of the major indicators with signals can be found in my book, All About Market Indicators (McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).

AAII survey (4/24/2013)

28.3% bullish. 38.8% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (4/24/2013):

44.3% bullish. 19.6% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .65

Sell Signal: Lower than .75 is a sell.

Buy signal: Higher than 1.0 is a buy (more puts are being bought)

 

VIX: 13.61

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages: S&P 500 above the 50-day, 100-day and 200-day MA.

 

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is above the zero line and even with the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

 

Sell signal: MACD line (black line) crosses below zero line. MACD line crosses below 9-day (red or gray) signal line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Comment: Chartists pointed out a bearish head and shoulders pattern has formed on the S&P. Another negative signal: Barron’s latest headline is: Dow 16,000! Over 70 percent of professional money managers are bullish. In summary, the signals are mixed, and the market continues to surprise. The markets could go either way, so probably best to sit tight until we see what is in store. S&P dropped to its 50-day MA and bounced higher, a positive sign. Lesson: Follow the trend until it ends. 

Bearish possibility: Market moves higher but fails to follow through, and retreats. That would be negative, and signals that institutions are selling. 

Bullish possibility: Market moves higher without retreating, and shocks the bears. 

Since no one knows what the market will do, all we can do is watch. The market is really at a crossroads, and you could make a case for either direction. If you’re a beginner, this is one of those times you sit back and learn. It is not the time to be a hero. 

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Market Indicators (week of April 22)

Breaking News: One of the stocks I wrote about, Lumber Liquidators (NYSE:LL), gapped up over 5 points today. As you know, it’s not a bad idea to sell stocks when they gap up on positive news. 

Each weekend, I will list signals from the most popular market indicators. *

(A full list of the major indicators with signals can be found in my book, All About Market Indicators (McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).

AAII survey (4/17/2013)

26.8% bullish. 48.2% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (4/17/2013):

47.4% bullish. 20.6% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .85

Sell Signal: Lower than .75 is a sell.

Buy signal: Higher than 1.0 is a buy (more puts are being bought)

 

VIX: 14.97

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages: S&P 500 firmly above the 100-day and 200-day MA, but slightly above 50-day MA. 

 

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is above the zero line but is below the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

 

Sell signal: MACD line (black line) crosses below zero line. MACD line crosses below 9-day (red or gray) signal line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Comment: It was a rough week for the country, gold, and the stock market. Last week, all signals were go, but now we’re teetering on the edge. Nearly all indicators went from bullish to neutral. The S&P 500 is resting slightly above the 50-day moving average. If it breaks below, that would be a negative short-term signal. MACD also turned slightly negative. These could be early signals the trend is about to change for the worse.

Going into this week, the indicators are saying, “Be cautious.” Maybe it’s not the time to make a major bet on either side. And yet, it’s not time to panic, either. Here’s one way to think about it: What is more probable? Dow 16,000 or Dow 13,000? The answer will dictate how you trade in the near future. Bottom line: Market was roughed up but still hanging in there for now. 

Note: What happened to gold was a good lesson in market psychology. As I said last week, anything is possible in the market, and it’s still full of surprises. Be prepared, as we’ll soon find out if the market is for real, or all hat and no cattle. 

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Market Indicators (as of April 15)

Each weekend, I will list signals from the most popular market indicators. *

(A full list of the major indicators with signals can be found in my book, All About Market Indicators (McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).

AAII survey (4/10/2013)

19.3% bullish. 54.5% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (4/10/2013):

50.5% bullish. 20.6% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .70

Sell signal: Lower than .75 is a sell.

Buy signal: Higher than 1.0 is a buy (more puts are being bought)

 

VIX: 12.06

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages: S&P 500 above all three moving averages

 

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is well above the zero line and is slightly above the red 9-day signal line.(Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

 

Sell signal: MACD line (black line) crosses below zero line. MACD line crosses below 9-day (red or gray) signal line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Comment: The biggest change for the week is individual investors, who think this bull market is going to end. Because they are so bearish, that is very bullish. Moving averages and MACD are also bullish. You can argue for hours about why the market should not go higher, but it does. The indicators reflect that. Of course there will be a correction one day, and of course we can’t predict Black Swan events, but until then, it appears this market is going higher. 

It’s fascinating to watch what happened to gold. I bought the gold ETF (GLD) for  years. I made a lot of mistakes but one thing I did right was get out of gold when GLD went below its moving averages. There was a bear signal last November, but I got completely out in December. And now, GLD is the opposite of SPX. Once the public realizes that GLD is not going to recover anytime soon, it could get brutal. But gold had a 12-year bull market. And for 12 years, many people hated gold, but it kept going higher.

What have I learned from this? 1. Indicators are more powerful than opinion. 2. Any market can go higher (or lower) than anyone can believe. 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Market Indicators (as of April 8)

Each weekend, I will list signals from the most popular market indicators. *

(A full list of the major indicators with signals can be found in my book, All About Market Indicators (McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).

AAII survey (4/3/2013)

35.5% bullish. 28.2% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (4/3/2013):

52% bullish. 19.4% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .70

Sell signal: Lower than .75 is a sell.

Buy signal: Higher than 1.0 is a buy (more puts are being bought)

 

VIX: 13.92

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages: S&P 500 above all three moving averages

 

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD: MACD is well above the zero line and is slightly below the red 9-day signal line.(Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

 

Sell signal: MACD line (black line) crosses below zero line. MACD line crosses below 9-day (red or gray) signal line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Comment: Market indicators still bullish. Market sentiment not quite as bullish last week, especially among individual investors, which is a positive sign. Last week, there were tons of articles about the coming market correction, but the market defies logic, as always. Friday could have been a disaster but market climbed back in the afternoon. You could make a case for either side: a true correction could be near, or the resilient market climbed a wall of worry. Take your pick because no can predict what will happen next. 

In my latest MarketWatch article on how to survive a correction (http://on.mktw.net/XWKLsN) , Amy Smith from Investor’s Business Daily put the airline stocks on her watch list, especially Alaska Airlines (NYSE: ALK). 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

How to survive the next market correction

MIAMI (MarketWatch) — When I interviewed famed mutual fund manager Peter Lynch a few years ago, he told me his winning stock-picking strategy: Go to the mall and observe what people are buying.

Then, he added, do basic research on companies before you buy, closely monitor the company, and understand the reason why you originally bought the stock.

“You have to keep checking the story and the fundamentals,” Lynch said. “It’s called doing research. This doesn’t mean checking the stock price each day. You can sit in a room and look at a stock all day and it won’t help you out one bit.”

Forget about trying to predict the future. As Lynch told me: “I’d love to know what will happen in the future. In fact, I’ve been trying to get next year’s Wall Street Journal for 40 years. I’d even pay an extra dollar for it.”

Bear markets and corrections are a normal part of the stock market cycle. Lynch told me that if you plan to sell your stock in a panic because the market falls by 10% or 20 %, maybe you shouldn’t be in stocks at all.

I thought of Lynch’s ideas when I went to Orlando last week. The theme parks were crowded, the hotels packed, the restaurants full, and the airlines booked to capacity. New York and Chicago hotels are also full, and conventioneers have returned. I know that many Americans are still hurting, but it seems that many in the middle class have opened their wallets.

Airline stocks delayed

Amy Smith, author of “How to Make Money in Stocks Success Stories” and market expert at Investor’s Business Daily (IBD), noticed that travel and leisure stocks had been zooming higher in the most recent quarter. A recent stock idea, Lumber Liquidators Holdings has had a phenomenal run. This stock has done well because the housing market is recovering and homebuilders are doing well.

Smith uses the CAN SLIM® investment strategy, created by IBD founder William J. O’Neil. Based on the strategy, Smith found three airline stocks that have performed well: Alaska Air Group, U.S. Airways Group and SkyWest.

“Alaska Airlines has been amazing,” Smith says, “although it did have a 7% drop on April 2nd. The key is to watch the market carefully. If you had bought Alaska Airlines and it dropped 7% below what you paid for it, the CAN SLIM sell rule would kick in. It’s your insurance against heavy losses.” Smith also says that most growth stocks tend to follow the overall direction of the market.

Should you buy these stocks now? No, Smith says. “Alaska Airlines has made such a strong move it could be ready to take a break and digest its gains.” Smith says it is a little late for these stocks right now but to remember that most big winners give investors multiple opportunities to participate during a price run.

“All of these companies are due to report earnings soon — Alaska Airlines on April 19th, U.S Airways on April 23rd, and Sky West on May 2nd,” she says, “so it’s risky to buy now.” These are examples of how you have to catch an uptrend early, she adds.

Managing a downturn

The strength in the airline stocks and cyclical companies such as Lumber Liquidators is good for the economy. It shows that people are spending money again, as I observed in Orlando. There will be a correction one day, of course, but fear is not a productive strategy.

If the airline stocks have great earnings, and volume increases, then they will continue to do well. Often, strong stocks that have made big moves pull back a bit and digest their gains before moving higher.

Unfortunately, if oil prices spike, all bets are off. Then a correction could turn into a bear market. If you are concerned, you can protect yourself with put options, diversification, or hedging strategies.

On one hand, you may want to sell your stocks if they drop 7% to 8% below your purchase price. On the other hand, Lynch says if you understand what stocks you own, you won’t panic.

During the next correction, only you can decide whether to sell at a 7% loss or continue holding until the worst is over.