Market Indicators (Week of May 20)

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 (5/15/2013)

38.5% bullish. 29.3% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.


Investor’s Intelligence (5/15/2013):

54.2% bullish. 19.8% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.


CBOE Put/Call Ratio: .50

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

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


VIX: 12.45

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: The bull market continues. Financial newsletter writers are bullish (II) but retail investors are still suspicious of this market (AAII). Put-Call ratio is a screaming sell but otherwise all indicators are bullish. Something to watch: Overall volume was weak on Friday (source: IBD).

Opinion: In the classic book, Reminiscences of a Stock Operator, Jesse Livermore showed up at the brokerage firm and every day one man watching the ticker tape proclaimed, “It’s a bull market!” And Jesse finally figured out what the man meant: It’s useless to fight the tape. In other words, no matter how suspicious you are of the market, and no matter how many reasons you can think of that contradicts why the market is going up, the market has the final word. And the market is telling us, “It’s a bull market.” As the market flies away, many retail investors are hoping to re-enter at 6,000.

You don’t fight the tape. Until I see evidence that this bull market is ending, I am long. It is too risky to short a bull market no matter what you think. The difference this time is that we will try to exit with small losses before it ends. If you are long the market with mutual funds, index funds, index ETFs, and leading stocks, this is an enjoyable ride. Enjoy it while it lasts, and never forget that it won’t last forever.

If you want to see a bear market, look at the gold chart (NYSE:GLD). I traded gold for years but I never fell in love with it. I fortunately got out in November and December based on what I saw in the indicators (moving averages). I am looking forward to buying gold again one day when the gold bear market is over and the trend is up, not down. It may be a while judging by what I see. Is it fair that gold is getting punished? No. But no one said the market is fair. Investor Benjamin Graham said that in the short term the market acts like a voting machine, and of course he is right.

* 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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