Market Indicators (as of Oct. 7)

Each weekend, I will list signals from some of the most useful 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 (10/2/2013)

37.8% Bullish. 30.1% Bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (10/2/2013)

46.4 % Bullish. 18.6% Bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Equity Put/Call Ratio: .59

Sell Signal: Less than or near .50 is a sell (more call options are being bought).

Buy signal: Higher than or near 1.0 is a buy (more put options are being bought)

 

VIX: 16.74

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages (daily): S&P 500 is resting slightly above its 50-day moving average, and above the 100-day and 200-day MA.

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

Buy signal: Index crosses over 50-day, 100-day, and 200-day MA.

Note: S&P 500 stopped falling but still not out of the danger zone. Dow Jones below 50-day and 100-day MA. 

 

MACD: MACD is above the zero line but crossed 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 crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

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

 

Analysis: Sentiment is mixed along with the technical indicators. Volume has been low as the market takes a wait and see attitude. Dow is under its 50-day and 100-day moving average, a bearish sign. Market could go in either direction according to the indicators. It’s a textbook sideways market.

Opinion: A sideways markets is dangerous. As expected, the market slowly drifted lower all week, especially the Dow, but reversed on Friday.

Most market participants are ignoring the shenanigans in Washington. Volume is low and themarket ended the week almost flat. No one seems to believe the U.S. will default on its debt, which is why there is complacency, and no panic. Meanwhile, the game of chicken continues.

Many investors are positive about the economy and believe we’ll go higher after we get through the government sideshow. After all, with the Fed watching your back, how can the market go down?

What will cause the market to rally? If the Fed announces that QE will continue indefinitely, if Janet Yellen is appointed Fed chairman, if corporate earnings surpass expectations, if there is an end tothe government shutdown, or if the U.S. doesn’t default.

What will cause the market to plunge? If the Fed tapers, if there really is a government default (unlikely), if earnings disappoint more than they already have, or if this uncertainty continues.

If you are new to the market (and even if you’re not), stay on the sidelines. In the meantime, look for clues where the market will go next. For example, if there is a rally, see if it lasts more than a day. If it doesn’t, that would be bearish.

According to the futures, the week should start with a bearish tone, but that could change quickly. When the market is this uncertain, staying on the sidelines is really the safest move. A low volume, confused environment could bring more volatility. Let the market prove itself before you commit too heavily to one side or the other. It’s easy to get it wrong.

Even if the political standoff ends this week, be on guard. If there is anything I’ve learned about the market, when you think you are home free, that’s when you get smashed in the face. With the Dow over 15,000 and stocks like Priceline surpassing $1,000 per share, it’s almost like 1999 again. Priceline is a great company, but $1,000 per share? I wonder.

Bottom line: The smart money is on the sidelines with a wait and see attitude. That’s where you should be, that is, until you determine which way the market is going. At the moment, we’re leaning bearish, but not at extreme levels…yet. If the Washington sideshow ends, there could be a relief rally, but we’ll see if it lasts. Finally, keep your eye on the bond market. If interest rates start to creep up again, bonds will get hit once again, which could affect the stock market. For now, it will take a major market event to turn this complacency into fear. We’re not there yet.

 

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

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