"Market undercurrents can make decisions a paralyzing event."

There are so many undercurrents of the market that making decisions can be a paralyzing event—and that's what we address here. What I saw was the market being oversold, the seasonal cycles pointing to a potential rally and the market approaching a period where it normally rallies.

On CNBC the traders, they were talking about a huge down day coming on Tuesday. Not sure where they got that from. I expected a more likely huge UP day, so we flipped our position on Friday to bullish.

I expect the market to move higher into the middle of this month.

In addition, I'm also looking for a bounce in oil. A very contrary play, since most were talking about $60 oil. I just think that's their linear thinking in a cyclical world.

Jay DeVincentis

Let's see who's right:

Jay DeVincentis

Stock Barometer Analysis

We issued a Buy Signal on Friday, placing us in Buy Mode.

Just so we're clear, the barometer is still pointing lower, but is extended. When the market volatility is above 20–30, we go into trading move, meaning the barometer may be a little slow to react, and I handle the trades personally (because high volatility can result in sharp moves against it).

So what I see is a seasonal bounce in an oversold market into 7/11 to 7/22 and then more selling into a stronger low in August.

The Stock Barometer is my proprietary market timing system. The direction, slope and level of the Stock Barometer determine our outlook. For example, if the barometer line is moving down, we are in Sell Mode. A Buy or Sell Signal is triggered when the indicator clearly changes direction. Trend and support can override the barometer signals.

Money Management & Stops

To trade this system, there are a few things you need to know and address to control your risk:
  • This system targets intermediate term moves, of which even in the best years, there are usually only up to seven profitable intermediate term moves. The rest of the year will be consolidating moves where this system will experience small losses and gains that offset each other.
  • This system will usually result in losing trades more than 50% of the time, even in our best years. The key is being positioned properly for longer-term moves when they come.
  • Therefore, it is vitally important that you apply some form of money management to protect your capital.
  • Trading a leveraged index fund will result in more risk, since you cannot set stops and you cannot get out intraday.
  • Make sure you set your stops so that you can lose no more than 2% per trade (based on the QQQQ if you're trading leveraged funds and options with our trading service).
Potential Cycle Reversal Dates

2010 Potential Reversal Dates: 1/19, 1/28, 3/2, 3/23, 4/7, 5/30, 6/10, 6/28, 7/10. We publish dates up to two months in advance.

Our expectations are for a rally into our next key reversal date—or next seasonal high period.

My Additional timing work is based on numerous cycles and has resulted in the above potential reversal dates. These are not to be confused with the barometer signals or cycle times. However, due to their past accuracy I post the dates here.

2009 Published Reversal Dates: 1/20, 2/11, 3/7, 3/15, 4/8, 4/16, 4/27, 5/7, 6/8, 7/2, 7/17, 9/14, 10/10, 10/24, 11/12, 11/30, 12/9, 12/21, 12/29. 2008 Potential Reversal Dates: 12/31, 1/11, 2/1, 2/13, 3/6, 4/5, 4/22, 5/23, 6/6, 6/27, 7/13, 9/2, 10/3, 10/22, 11/10, 12/11. 2007 Potential Reversal Dates: 1/10, 1/14, 1/27, 1/31, 2/3, 2/17, 3/10, 3/24, 4/21, 5/6, 6/15, 8/29, 10/19, 11/29, 12/13, 12/23, 12/31, 1/11/08. 2006 potential reversal dates: 1/16, 1/30, 2/25, 3/19, 4/8, 5/8, 5/19, 6/6(20), 7/24, 8/20, 8/29, 9/15, 10/11, 11/28. 2005 Potential reversal dates: 12/27, 1/25, 2/16, 3/4, 3/14, 3/29, 4/5, 4/19, 5/2, 6/3, 6/10, 7/13, 7/28, 8/12, 8/30-31, 9/22, 10/4, 11/15, 11/20, 12/16.

Spread Indicators

Use the following spread/momentum indicators to assist in your trading of the QQQQ, GLD, USD, USO and TLT. They are tuned to deliver signals in line with the Stock Barometer and we use them only in determining our overall outlook for the market and for pinpointing market reversals. The level, direction and position to the zero line are keys in these indicators. For example, direction determines mode and a buy signal 'above zero' is more bullish than a buy signal 'below zero.'

QQQQ Spread Indicator (NASDAQ:QQQQ)

Jay DeVincentis

The QQQQ Spread Indicator will yield its own buy and sell signals that may be different from the Stock Barometer. It's meant to give us an idea of the next turn in the market.

Gold Spread Indicator (AMEX:GLD)

Jay DeVincentis

Want to trade gold? Use our signals with the gold ETF AMEX:GLD. Gold gives us a general gage to the overall health of the US Economy and the markets.

U.S. Dollar Index Spread Indicator (INDEX:DXY)

Jay DeVincentis

Want to trade the USD? Use our signals with the Power Shares AMEX:UUP: U.S. Dollar Index Bullish Fund and AMEX:UDN: U.S. Dollar Index Bearish Fund.

Bonds Spread Indicator (AMEX:TLT)

Jay DeVincentis

Want to trade bonds? Use our signals with Lehman's 20-year ETF AMEX:TLT. The direction of bonds has an impact on the stock market. Normally, as bonds go down, stocks will go up and as bonds go up, stocks will go down.

Oil Spread Indicator (AMEX:USO)

Jay DeVincentis

Want to trade oil? Use our signals with AMEX:USO, the oil ETF. We look at the price of oil as its level and direction has an impact on the stock market.

Supporting Secondary Indicator

Jay DeVincentis

We daily monitor hundreds of popular and proprietary technical indicators that break down market internals, sentiment and money flow to give us unique insight into the market. We feature at least one here each day in support of our current outlook.

Summary of Daily Outlook

We've remained in BUY mode since Friday, looking for the market to move higher into mid July.

If we get that action, then look out below—we're moving lower into August (much lower).

Big picture, I'm bullish on oil and bearish on the dollar, bonds and gold. Gold is moving lower first and should consolidate lower for most of the next few months. Oil, I will watch closely—playing a bounce with UCO—but the oil market has been perplexing most. Bonds are not moving lower yet—some sustained bullish market activity could get people to sell bonds here and move into the market. That would extend the rally to previous highs—although that may be optimistic.

I hope you all had a nice holiday weekend—I know I did (and could use a good long day of trading to recover).

I am in the chat room from 9:30 a.m. to 10:30 a.m. (EST) if you want to ask any questions.

If you have any questions or comments, email me at [email protected].


Jay DeVincentis
President, Investment Research Group, Inc.
Founder, Stock Market Barometer

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