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).
Note to myself on May 14th: In a bull market, nearly all stocks go up, almost every strategy works (except shorting), and don’t think I’m a genius. Stay with the bull market as long as it continues but be prepared to sell when there is evidence it is weakening. Look for evidence, not beliefs, i.e. the belief that the market “can’t” go any higher. It can.
AAII survey (5/8/2013)
40.8% bullish. 27.4% bearish.
Sell signal: Over 60% bullish.
Buy signal: Over 50% bearish.
Investor’s Intelligence (5/8/2013):
52.1% bullish. 19.8% bearish.
Sell signal: Over 50% bullish.
Buy signal: Over 50% bearish.
CBOE Put/Call Ratio: .59
Sell Signal: Lower than .75 is a sell. (more call options are being bought)
Buy signal: Higher than 1.0 is a buy (more put options are being bought)
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 is 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.
Analysis: No major changes in this market. The major technical signals are still bullish. Retail investors are starting to believe in this bull market along with the pros, but not at extreme levels (yet). Trend still up and you follow the trend. Indicators still say the bull market has room to go.
Opinion: I have a very knowledgeable acquaintance who has been shorting this market via inverse ETFs for nearly a year. He’s ready to throw in the towel. He still believes he’ll be able to buy stocks at a much lower price (along with everyone else), but he’s nervous. Hint to my acquaintance: When you’re down more than 5% or 6% (or 7 or 8%), cut your losses.
The trend is still up and I follow the trend until the indicators say it’s over. Still, I am always on guard for a reversal: For example, a strong opening but weak close, two or more days of institutional selling (distribution) per CAN SLIM, and leading stocks that are faltering. I’m also looking for sky high sentiment readings.
Right now, many retail investors are in disbelief (or denial) about this market. After disbelief, we may get hope, optimism, and excitement. That’s when the sentiment readings will go off the chart, and you have to be cautious.
As always, don’t go on margin and have a plan in case there is a worst-case scenario. Having a strategy and a plan helps me to sleep at night. If you’re betting on probabilities, we’re going higher. And yet, the market always finds a way to humiliate the most people it can (billionaire investor Ken Fisher once told me that he calls the market “The Great Humiliator”).
With that in mind, I can’t wait to see what The Great Humilator has in store for us this week.
Followup: In my February 6th MarketWatch column, Amy Smith from Investor’s Business Daily said that Lumber Liquidators (NYSE: LL) fit the CAN SLIM criteria. Since that mention, the stock has gone up by nearly 20 points. In my most recent column, Smith said to watch the biotechnology stocks. If you follow the biotechnology sector with the ETF, IBB, you may have noticed it’s had a very strong run. That could also be the first sector to falter when this bull market slows down.
* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.