The Weekly Trader

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)

 

VIX: 12.59

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.

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 (5/1/2013)

31.0% bullish. 35.9% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (5/1/2013):

47.9% bullish. 18.8% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .61

Sell Signal: Lower than .75 is a sell.

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

 

VIX: 12.85

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 change in the indicators except the pros are getting more bullish and the retail investor still seems suspicious of this rally (AAII and II sentiment readings). Trend is still up and you follow the trend until it ends. The indicators say this bull market has some room to go.

My Opinion: Wow! This bull market seems unstoppable, but all bull markets end, eventually replaced by a correction or a bear market. If you’re a beginner, stick with your long positions but be cautious. Everyone is looking for signs of a slowdown such as more than one day in a row of a strong down market; a strong opening but weak close; market indicators turning down; and leading stocks stop advancing.

What I learned: Don’t blindly follow anyone (including me) but do what you think is right. So many people gave so many reasons why this market wouldn’t go up, and they were wrong. The lesson is to rely on market indicators, not on opinions. For years, some of my acquaintances angrily told me why the market “shouldn’t” go up, but the market still did. I’m thankful I discovered indicators or I’d still be relying on bad advice, wrong opinions, and logic. Guess what? The market isn’t always logical, which is why so many extremely smart people do poorly in the market. You want logic? Play chess.

During this bull market, almost everything worked. For now, enjoy the ride while it lasts (but be on guard). I can’t wait to see what the market has in store for us this week. If it goes higher, it will flabbergast a lot of people.

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

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.

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.

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.