I use Sundays to review the market action from the previous week. I try out a number of alternative scenarios in my mind. What is a Bullish projection for the week? Suppose the market goes nowhere this week? What is a Bearish possibility for the week? I run through all of the "what ifs" in my mind, so that I am prepared should the time to buy be at hand.
I ran through these points about the S&P 500 Index in no particular order:
1. The S&P 500 Index closed below its 200-day moving average on a weekly chart. This is the first weekly close below the 200-day moving average since before the November 5 top. This point is bearish and supports the case for lower prices.
2. The Relative Strength Index (RSI) on a daily chart is around 49. It needs to be lower before its a good time to buy.
3. For an interesting twist on the strength of the trend, I looked at the ADX indicator. The ADX measures the strength of the trend. It doesn't tell you whether the trend is up or down. But it can tell you that are in the calm before serious price action. The reading was 17.50 or thereabouts. That is low. That is really low. It approximates the low readings we saw in early to mid-August. Now, the trick is that a low ADX reading can mean accumulation or distribution by Smart Money. No one can know for sure until the ADX turns back up and heads over 25. If it means accumulation by institutions on the sly like we saw in August, then a good time to buy will be here soon. This take on the low ADX reading makes sense to me. On the other hand, if the low ADX reading means distribution by Hedge Funds and Wealthy Individuals, then lower prices are ahead. The overly bullish sentiment by retail investors supports this interpretation.
4. I then note that the price of the S&P 500 Index is below the 13-day moving average. This is bearish. And the 13-day moving average is downward sloping. This is also bearish. Probabilities suggest that the 13-day moving average will halt any advance in the S&P 500 Index in the short run.
5. There is a gap from Wednesday's close @ 1198. I would not be surprised if the market filled this gap at some point.
6. The trin reading closed @ 2.1. This reading showed selling pressure on Friday. However, the selling was not at a capitulation level. Readings above 2.4 show capitulation. This point suggests that we will see more selling pressure.
7. The MACD line remains open and pointed down. This condition means the trend is down for now.
8. Interestingly enough, the MACD Histogram has flat-lined. This point has caught my eye. In my experience, the time to buy happens when there is positive divergence between the price action and the Histogram. In other words, the histogram has moved higher while the price of the S&P 500 Index has dropped lower. (For a wonderful read about positive divergence and the MACD histogram and how to make money in real time, see Dr. Elder's Come Into My Trading Room.) In simple terms, a good time to buy would be when the S&P 500 Index drops below 1173, sell stops are hit by investors and traders hoping that 1173 would hold as support and the MACD histogram moves higher. That is the sweet spot in time. That is the real time opportunity to buy and add to the C Fund.
9. The full stochastics has not dropped into oversold conditions below 20 on stockcharts.com. So, this point suggests that any thought of a good time to buy is premature at this time. That could change. Market conditions are always changing. But this afternoon, I want to see lower readings. Similarly, the reading on clearstation.com has hit the oversold line once since November 5. I want to see a second or third hit. Then, it will be a good time to buy.
10. CONTRARY OPINION - I have read the Sunday newspaper. I have scanned the headlines. I have watched CNN and Fox News and the local tv stations this weekend. There have been no fearful references to the stock market. None. So, the absence of fear in the media tells me that now is not a good time to buy. Should that change, then I will act accordingly.
Conclusion. Successful investing and trading requires daily homework. Global markets are open 24 hours a day. Sometimes, I think the process is like being a police officer. (My father-in-law was a NYC plains clothes policeman.) He would say that 99% of the time, policing the streets was dull and boring. It was like watching paint dry. But the other 1% of the time made up for it. Watching the market is comparable. There's nothing much going on much of the time. But you have to watch the markets every day so that you can catch the 1% day when it is a good time to buy.
That's how money is made. That's how winning is done. One day at a time.
Have a good Sunday!
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1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
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