As I sit here in beautiful Boise, Idaho on the banks of the gorgeous Boise river, I am reflecting on the best CycleProphet Users' Forum and Wealth Building Symposium ever (I know last week's event was the best ever because it was our first ever!). The two and a half-day event went off without any major hitches and from the feedback, it was a huge success. It was good for everyone to hear/see some more of the CycleProphet staff. The attendees learned a lot and picked up some very special insight into getting the most out of the CycleProphet tools and trading methodologies.
Quote worth Quoting Again
|"We, the people are the rightful masters of both Congress and the courts, not to overthrow the Constitution, but to overthrow men who pervert the Constitution."... Abraham Lincoln|
In a few days, I will be sending you survey regarding some planning for next year's CycleProphet Users' Forum and Wealth Building Symposium. Be thinking about where you would like to have it and the topics that you think would mean the most to you and your fellow subscribers. Several of the attendees suggested we hold an annual event in Austin. I like that idea a lot, but want to hear what you think. Be sure to fill out the survey when you get it.
Will this market ever stop surging higher???
The market had a most interesting week as it climbed higher; defying the mere thought of a correction or even catching its breath. How much longer can this bull market last? My guess is it will last as long as the US Federal Reserve can continue to print money by "increasing its balance sheet" and keep interest rates at an artificially low rate of near 0%. The market has completely moved away from normal fundamentals for trend direction... and, forget about any kind of historic technical analysis. About the only 'technical' guideline that seems to have some clarity about the market's moves higher is the CycleProphet trend probability forecast.
The scary thing about this market is the 'fact' (at least that is my opinion) that we are in an artificial bubble created by central banks, globally, in general and the US Federal Reserve, in particular. The big problem is that since our government has borrowed nearly $20 trillion and no slow-down in sight, the moment that the interest on that borrowed money moves to some sort of normalcy (3% or higher), the cost of the interest alone will become a staggering burden to overcome. So, the Fed HAS to keep rates artificially low as far as the eye can see. This silly concept that the Fed can do some sort of gradual unwinding of its quantitative easing is just pure conjecture. The Fed cannot let interest rates rise as long as the economy will not support a debt the government has taken on and since the government, in its 'everyone-gets-free-stuff-
Those that claim there are solid economic reasons for the market to continue on this bull trend that started in March of 2009, completely ignore the impact of the Central Banks on a global basis. Once these banks start to unwind their trillions of dollars of liquidity and monetizing of debt, interest rates will begin to rise. The US has not offered a plan to handle the paying of interest payments on the national debt once rates get above 2% or 3%. The economy will have to be booming to offset the need for taxes to pay the interest coming due.
At this moment, the only big economic event that could occur (that I see) that would put the US economy into a 'boom' cycle, is an industrial revolution triggered by the enormous deposits of oil and gas that have been discovered in North America over the past few years. Cheap energy could be the catalyst to start such a revolution. But, it is very unlikely that this current Administration will unlock this opportunity when they won't even approve the Keystone Pipeline. Plus, the socialistic radical environmentalists continue to stand in the way of cheap energy by lobbying against any expansion of oil/gas production.
Without cheap energy, I do not see a strong, booming US economy any time in the near future. If the economy does not boom before interest rates start rising, the perfect storm for a cataclysmic fall in the market could ensue.
However, I do not see that dire situation unfolding this coming week; and since I am a long-term investor, one-week-at-a-time, I will continue to push more for bullish trades than bearish. But, the prudent trader will keep an eye on his/her unrealized gains and take them whenever possible.
As you can see from the CycleProphet Trend Probability Forecast for the SPY (right), the first trend (highest percentage probability) is only slightly bearish.
With the first trend of both of these major indexes showing no appreciable trend, the best plan is to stay the course for broad-market plays. This means if you are long, stay long (but keep your stops as tight as the Expected Move will let you). If you are not long the broader market, now is not the time to jump in; nor is it the time to start shorting. Right now, I prefer to take small bites of this market on a sector-by-sector basis (see "My Take"... below).On the other hand, the forecast for the Russell 2000 ETF is very slightly bullish (see below, right).
After running hundreds of thousands of back-tests on the trend probability forecasts, the results clearly show that the highest winning percentage strategy is to trade ONLY the first trend that is at least one week in duration and not more than four weeks in duration. The trend can actually extend longer than four weeks, but the best winning percentages come from the one-to-four week timing of first trends.
Keep this 'First-Trend-Short-Duration' strategy in mind when using the Market Forecaster and Equity Forecaster charts. Also, keep this in mind... I only look at the forecast charts one time a week (Mondays). I do not refer back to them during the week. Why? Because of the results of our hundreds of thousands of back-test studies... the fantastic performance results came from a once-a-week forecast methodology. Pick your day of the week (I recommend Mondays) and make all your decisions based on the time-cycle results for that Monday... then, do not go back to the forecast charts until near the end of the trade expiration date.
When you put your trade on, set your exit strategy and then quit second-guessing yourself. The back-tests have proven this to be the right strategy.
I plan to continue to add to my bullish trades, but will also be looking to add some small bearish trades utilizing some inverse ETFs. Specifically, for my first, short-duration plays (trades between one week and four weeks):
- With regard to the broad market, I am neutral.
- For Telecom, Basic Materials and Financials, I am bullish for the next 30 days.
- For Energy, Industrials, Technology, Consumer Staples, Utilities, Healthcare, Consumer Discretionary, Gold, Silver and Oil, I am bearish for the next 3 weeks, only.
Note on bullish plays...When you take all the trend probability forecasts together and look at the resulting picture as a mosaic, it is very easy to come away with the conclusion that this market may be running out of steam. But... and this is very important... as long as the Fed continues to juice the liquidity in the market and keep interest rates artificially low, this market could continue to move higher. Don't hesitate to take profits whenever you can. I, personally, do not want to hold more than about 12% in profit in any one holding without taking some of that gain off the table and/or putting in stops that lock in gains of 10% or more. I don't trust a market that is so heavily skewed to the bullish side because of reasons other than pure economic.
Bull/Bear and Oscillator Report...
Each week, our computer programs compile the total number of equities in our database (over 6,000) that are issuing new "Alerts" for this coming week. The Alerts can be any one of the following:
- BUY - This means the status of the equity last week was "OUT" and this week, the weekending closing price moved high enough above my 10-week, time-shifted, moving average to trigger a "BUY". Click Here for this week's STRONG BUYS, or Click Here for this week's BUYS.
- OUT - This means the equity stopped out by triggering a long-position stop-loss where the equity was sold, or it triggered a short-position stop-loss where the short position was covered.
- SHORT - This means the status of the equity last week was "OUT" and this week, the weekending closing price moved low enough below my 10-week, time-shifted, moving average to trigger a "SELL SHORT". Click Here for this week's STRONG SELLS, or Click Here for this week's SELLS.
A running total of these new conditions (BUY, OUT, SHORT) is kept on a weekly and monthly basis. We have found that an analysis of these data provide a reasonably consistent view of short term (upcoming week) and longer-term (next few weeks) of the market, as follows:
- First of all, the ratio of new Short Sell Signals (red line in the Turner CrossOver Oscillator, below) is an excellent indicator of overbought or oversold conditions. Oversold means the market will have a tendency to move from a downward trend to an upward trend.
- We have also found that the total number of Short Sell Signals compared to the total number of Buy Signals is a reasonably good indicator of investor sentiment. The more Short Sell Signals, the more bearish the sentiment. The more Buy Signals, the more bullish the sentiment. This investor sentiment analysis is generally more valid for the upcoming week.
- The Composite (black) line is produced by subtracting the total number of Buy Signals from the total number of Short Sell Signals. Charting this total over time and observing how the red line crosses the black line, often provides an excellent early warning of a market correction.
These data elements, along with charting the trend of the S&P 500 provide the basis for the brief forecast provided in these weekly Reports. It is important to understand that this analysis is based solely on a technical analysis and anecdotally-derived historical observations of these data. I write the weekly forecast based on my observation of the data and the Oscillator chart. Time-cycle data are NOT explicitly included in this analysis.
The investor sentiment Bull-to-Bear ratio has now moved into serious Bull mode. The black line (Composite of Signals) has crossed the red line (Short Sell Signals) from below. Far more times than not, this is an indication that the market is likely to move higher. Even though the ratio is a relatively low 3-to-1 favoring of the Bulls, this crossing action is significant. This Oscillator crossing pattern is not an absolute guarantee that the market will move higher. And, there is no way, at this point, to know if the move higher will be mild or significant. But, this pattern is definitely supportive of staying long if already long in the broader market. It also suggests that a sell-off is not highly likely in the very near term. Add to this, that the time-cycle trend probabilities for the broader market indexes have become quite a bit less Bearish with some signs of stronger Bullishness in the offing, and one might conclude that this coming week could be another up week in the market. For the first time in quite a while, adding to long positions for broad market plays, looks to be worth some serious consideration. It is still a good idea to watch this market closely and be ready to move to cash if a down-trend begins to develop.
This week, Sue and I are taking a little R/R in the quiet, 1950's town of Boise, Idaho. Nobody honks at you, even if you do something stupid while driving. The temperature is briskly cool, but ever so comfortable. Our hotel room is only about 80 feet from the beautiful Boise river. Every morning/evening, the big Canadian geese bring their goslings up to the hotel grounds. Quite a sight and absolutely no fear of humans. The only problem is the goose poop left to step around. We've rented some bikes and are tooling up and down the fantastic 20-mile+ bike trails along the river. The trails are smooth, paved, flat and you never have to cross a street as there are tunnels for the cyclists. Everyone is friendly. Total strangers go out of their way to say hi. I'm sure there are other places in this country like Boise, but I've not found one. It really is a lot like living back in the 50's; at least the way the people treat each other.
On another note, I want to thank everyone who attended out Users' Forum and Wealth Building Symposium this past week in Las Vegas. Your time and positive feedback was incredible. I look forward to next year's Forum! The interchanges we had with our subscribers and clients were extremely enjoyable. Plus, we had some fun on the last hour of the forum when the forum was focused on my opinion regarding where the market is headed in the near and not-so-near future and how we, as active, serious stock market investors, could best prepare for an optimistic and not-so-optimistic potential view of the future.
In the final hour of the two and a half days, the group baited me to get up on my soapbox and I obliged them. My only hope is there were no Nuevo Gestapo IRS agents in the crowd, now that we know the government is targeting anyone who dares take a strong conservative, anti-big government stance. It was fun though and even my liberal, Obama-loving subscribers and clients were very politely tolerant of my rants. A good time was had by all... at least it seemed that way.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer