Last week we discussed how market sentiment is just too hot and we most likeky will not sell off in a panic type sell off.  Here’s the numbers for the week.

My little chart at the bottom of http://pv.ttthedge.com is broke :(  because of the Labor Day Holiday.  So I posted this one this week.  Notice that all the Major Indices were down about 1% on the week with the Nasdaq 100 the strongest (Tom issued a buy signal on Tuesday) and the Small Caps being the weakest.  The Dow however has shown considerable strength. 

Tuesday’s selloff was very frightening.  If you listened to CNBC and the Doug Kass updates you would all be convinced that the market was going into free fall.  I lost some faith in my little pullback call from the Weekly newsletter and dug into more research and published this post Which line is longer? Left or Right? 

I think it is worth the read if you did not get a chance.  If anyone knows how to get it to Doug Kass it might save him some $$$$$.  Eventually Doug will be right, as we continue to make higher highs here we will do so on lower and lower sentiment data and then bombs away.  We are just not there yet.  Soon maybe.

I confirmed with some of my other friends this weekend what they were seeing particularly in comparison to the 1987 crash.  We have a little ways to go before that history repeats.

Our 52 Week NYSE New Highs:

If you were in the room on Thursday you would have know that by 11:00 am we were calling for a buy signal back into the market.  We could tell via the 52 week new highs that were beginning to pile on that our 5 day momo indicator was going to turn at the end of the day.  On Friday we were issuing very bullish New High reports all day.  The Rut was troubling us but we knew if the RUT A/D could reach positive the market would light up.

We issue a new high report every 1/2 hour on our twitter feed.. which has moved now to http://twitter/redsdata.  Robot postings on my regular twitter account http://twitter.com/redliontrader was lowering my search score so I needed to move it.  This week we have added a score that ranges from 4+ to 4- to help interpret the NYSE data.  You can read about the updated format at: http://www.redliontrader.com/2009/09/how-to-interpret-new-high-data.html

Pure Price:

 

The sisters have done their usual bullish job of climbing out of the recent pullback.. I did have to add some new % lines adding yellow as the 4% number, magenta as 5% and for the TF I needed to add green for 6%.  These lines are based on this years high set on August 28th.  I find the %pullback lines very useful in pointing out weakness and strength.   Three of the sisters, YM, ES and NQ have climbed back to become close to the 1% level.  TF is still back at the 3% level.

The NQ have been the strength returning, they have climbed 3 rungs from their pullback  to nearly 5%.  I ended the day on Friday holding a little more short than I wanted expecting a Gap down open on Tuesday with a rally.  Instead it is clearly looking like a Gap up open with a ?   Tonight’s research is going to be recent gap behavior so I can trade out of my positions.  If I find anything good I will pass it along.

Our Zweig Panels

Our Zweig went oversold on Tuesday and we mentioned that since March 9th they only sit in that oversold area for 1 trading day.  Anything longer would be change of character.  The R2000 Zweig Breadth did stay 2 days, so a little warning shot on weakening sentiment? You can see that the broad market indicators on the left didn’t really break any new levels and as far as the Zweig is concerned the markets remain in Bull mode.

% Above 40 Day Moving Average

This was the chart that gave us a sell signal on 8/31,  We used the turn up to cancel the sell Intraday on the 3rd and the New Highs and Tom’s Nasdaq buy signal triggered.  Notice how this indicator is slowly bleeding off value.  The slow downward slope on the yellow trend line will be our measurement moving forward this week.  If we were to cross above that (i seriously doubt it) that would be extremely bullish.  Most likely we will again turn at the sub 88 level and move sideways while the market moves higher.

What I am watching for on this indicator to predict the big-bang are values below 70 with a rally back up to 80, but failure to cross 80 or less, all the while making new market highs.  See how we continue to climb even though this number creeps down?  When we keep making highs with the value less than 80 watch-out.  Until then the bull rules.. If history repeats and India can keep peace with Pakistan.

The Week Ahead.

The way is cleared now to retest and make new highs.  Watch our postings on the NYSE new highs to see if  we make new index highs on lower 52 week highs, this is the kind of weakening we are looking for.  Today we were trapped without trading and the world went into in rally mode.  As I write this late Monday afternoon the  abbreviated futures market is closed and the YM (dow) and ES (sp-500) are up quite large.  ES is up 7.75 over Friday’s close and YM is up 62 points.  That certainly has trapped some bears, the question on tomorrow’s open is who has more fear

a)  those that have ended with a free 3day windfall gift and afraid of loosing the profits

b) or the bears afraid that the stampede is in a  full run again. 

We will watch the open tomorrow, I would expect a sell-off at the open ( a little profit taking) and then a return to the highs.  Much will be said about professional trading rooms back to full staff, it should be fun.  I fully expect to make new highs this week although each new high should be harder and less difference from the last.  If sentiment remains as strong as it is now without loosing steam during this week than Doug Kass better cover and wait because it means we have a little ways to go yet.

See you in the markets

Marlin Cobb – aka Redliontrader

 

ps.  Remember it is ReUp time. From now until Sept 15th you can renew your service for 2010 at the same price as last year; $499 for trade room access with email or $125 for just email.  After Sept 15th the price will go to $749 for the year for trade room access and $249 for our email service.. which is still a bargain.. imho.  If you can find a better service I would like to know.  If you can find a better service at this price I would really like to know that.

After Sept. 15th Tom and I will be scrubbing the Mailing lists.. so for some of you this might be your last weekly letter.  I hope not.  The strength of response to our current Early Bird special is forcing us up against some limits in rooms and mailing lists and increasing our costs.  If you find value in our work please consider rejoining to secure your spot.  Thanks to all that have read and responded.. you have made me a better trader. – See you in the Markets!

contact@redliontrader.com

This is my icon

Martin Zwieg is perhaps one of the greatest investors ever.  His simple market timing tools did not use “flash trades” or fractals or high power computer.  Martin’s techniques were simple sentiment techniques that kept Mr. Zweig on the right-side of the market, invested during the good times and on the side-lines during the bad times. 

"Buy strength, sell weakness and stay in gear with the tape."

 

Outline of Winning on Wall Street

Rule #1.    " Don't Fight the Fed"

Mr. Zweig has an in-depth discussion on monetary indicators. When the Fed is in stimulus mode you should be on their team.  Their are several indicators to help you decide the “Feds” direction and stay on the right-side.

   a.    Prime Rate Indicator

The prime rate is the interest rate that banks charge their best customers.  Zweig uses this indicator to determine if lending is “bullish” or “bearish”.   He bifurcates the indictor at 8%.  About 8% is bearish and below bullish.  We have not been above 8% for a long time .  For our “Modern time” we should substitute 6% for the Bull/Bear line.

Source	This Week	Month Ago	Year Ago
WSJ Prime Rate	3.25	3.25	5.00
Federal Discount Rate	0.50	0.50	2.25
Fed Funds Rate	0.25	0.25	2.00

 

"But at levels below 8%,somewhat larger increases in rates are needed to give bearish signals.  While the 8% demarcation is open to debate, clearly both the level and the direction of rates are important, although all of my studies show that the trend of interest rates is more significant than the level itself."

Buy Signals:   1.     Any initial cut in the prime rate if the prime's peak was  less than 8%.  2. If the prime's peak is 8% or higher, a buy signal comes on either the second of the two cuts or a full 1% cut in the rate.

Sell Signals:    1.    Any initial hike in the prime rate if the prime's low is 8% or greater.  2.    If the prime's low is less than 8%, a sell signal comes on the second of two hikes or a full 1% jump in the rate. 

   b.    Fed Indicator

Dr. Zweig believes that the Fed has two weapons in its arsenal.  One is the discount rate, the other is the reserve requirements.  You need to monitor the direction of change in either of the two tools.  This tool is known as "the lazy man's indicator"

Rules:    Grade the discount rate and reserve requirements separately.  Then their scores are combined.  According to Zweig, the Fed hadn't changed the reserve requirement for over 13 years from the books edition (1994).

Negative Points:   An increase in Discount rate is bearish.  A hike in either one receives minus one point.  The negative point remains for 6 months, after which it becomes "stale" and is discarded.

Positive Points:    Moves by the Fed toward easing have a greater positive impact on stock prices than the negative effect created by tightening.  An initial cut in either of the two tools, wipes out any negative points that have been accumulated.  It also kicks in 2 positive points.  After 6 months of staleness, one point is taken away.

Extremely Bullish
+2 or more points

Neutral
0 or +1 point

Moderately Bearish
-1 or -2 points

Extremely Bearish
- 3 or more points

I pulled the following table from the Federal Reserve Board website on January 10, 2005.

Primary* Credit
2
New York

2.25%
09-Jan-03

2.00%
25-Jun-03

2.25%
30-Jun-04

2.50%
10-Aug-04

2.75%
21-Sep-04

3.00%
10-Nov-04

3.25%
14-Dec-04

3.50%
02-Feb-05

It looks as though the score would now be a -5.  The indicator appears to be in "extremely bearish" mode.  The first hike was on June 30, 2004. On August 10, 2004, the indicator became moderately bearish.  On September 21, 2004, the indicator became extremely bearish.   Yet, when you look at the chart of the DJI since September 21, 2004, it is yet to tell us a bearish picture.  This will be something to watch.

2.    Advance/Decline Indicator - This is a momentum indicator.  Take the number of stocks that rise in a given day over the number that declines.  Zweig likes to use a 10 day period.  He claims that there were only eleven cases since 1953 through 1994 where the A/D ratio was 2:1 or more.  He feels you should wait for a confirmed trend before jumping in.  He claims that you won't get in at the bottom, nor will you get out at the top, using this method.  I don't often apply momentum indicators.  Again, that is my preference in investing, and that might not be yours or anyone else's.

3.    The Four Percent Model -  This was developed by Ned Davis.  I am only interpreting this model in a simple sense.  You use the weekly close of the Value Line Composite.  When the index changes by greater than 4% from the previous week close, the buy or sell indicator generates a signal.

4.    Sentiment Indicator - Zweig discusses when to part company with the crowd.  He states, "The crowd tends to follow the wrong signs near the market tops and bottoms."  He discusses that at the greatest depths of a bear market, the economy is generally in recession and business profits are tumbling.  Investors are punch drunk from suffering huge losses for a year or two of falling prices.  Bad news dominates the headlines.  Most people only see the downtrend continuing.  This is the gloom and doom that bear markets bottom and bull markets begin.  Watch for loosening credit and interest rate decreases.  I guess one could argue that as of this date (1/11/05), that we are seeing the opposite.

If you are interested in receiving our free weekly newsletter of my "research of the week" please provide me with you email address

---

Email Address:

When the rest of the world says sell, it’s time to buy.  Last week’s email we called for a little respite of the bulls, but we held you hands and told you everything was going to be alright., despite the Chicken Littles running around warning that the sky is falling.

Market sentiment is still too high for a panic type sell off.  Here’s the numbers for the week.

My little chart that I put together is broke right now because of the Labor Day Holiday.  So I posted this one this week.  Notice that all the Major Indices were down about 1% on the week with the Nasdaq 100 the strongest (we issued a buy signal on Tuesday) and the Small Caps being the weakest.  The Dow showed considerable strength.

Tuesday’s selloff was very frightening.  If you listened to CNBC and the Doug Kass updates you would all be convinced that the market was going into free fall.  I lost some faith in my little pullback call from the Weekly newsletter and dug into more research and published this post for our members: [ you need to join!]

Which line is longer? Left or Right?

I think it is worth the read.  If anyone knows how to get it to Doug Kass it might save him some $$$$$.

Eventually Doug will be right, as we continue to make higher highs here we will do so on lower and lower sentiment data and then bombs away.  We are just not there yet.  Soon maybe.

I confirmed with some of my other friends this weekend what they were seeing.

Our 52 Week New Highs:

If you were in the room on Thursday you would have know that by 11:00 am we were calling for a buy signal back into the market.  We could tell via the 52 week new highs that were beginning to pile on that our 5 day momo indicator was going to turn at the end of the day.  On Friday we were issuing very bullish New High reports all day.  The Rut was troubling us but we knew if the Rut A/D could reach positive the market would light up.

We issue a new high report every 1/2 hour on our twitter feed.. which has moved now to http://twitter/redsdata.  Robot postings on my regular twitter account http://twitter.com/redliontrader was lowering my search score so I needed to move it.  This week we have added a score that ranges from 4+ to 4- to help interpret the NYSE data.  You can read about the updated format at: http://www.redliontrader.com/2009/09/how-to-interpret-new-high-data.html

 

The Week Ahead.

The way is cleared now to retest and make new highs.  Watch our postings on the NYSE new highs to see if  we make new index highs on lower 52 week highs, this is the kind of weakening we are looking for.  Today we were trapped without trading and the world went into in rally mode.  As I write this late Monday afternoon the  abbreviated futures market is closed and the YM (dow) and ES (sp-500) are up quite large.  ES is up 7.75 over Friday’s close and YM is up 62 points.  That certainly has trapped some bears, the question on tomorrow’s open is who is more afraid.. t

a) those that have ended with a free windfall gift of trading and afraid of loosing the profits,

b) or the bears afraid that the stampede is in a  full run again. 

We will watch the open tomorrow, I would expect a sell-off at the open and then a return to the highs.  Much will be said about trading rooms back to full staff, it should be fun.  I fully expect to make new highs this week although each new high should be harder and less difference from the last.  If sentiment remains as strong as it is now without loosing steam during this week than Doug Kass better cover and wait it means we have a long ways to go.

See you in the markets

Marlin Cobb – aka Redliontrader