The market demonstrated amazing resilience last week and took out the resistance at 1100 and closed above the 50-day moving average on the heels of “better than expected” earnings releases from a multitude of companies.

Call me skeptical, but this rally took a lot of people off guard and forced a lot of short covering. While we may carry through a bit into next week I would be surprised if we continued up past the 200-day moving average on the SPY. The 200-day represents the next significant hurdle.

Below you see a chart of the SPY where I have marked next weeks likely trading range in yellow.

On the daily chart this area is shown in the green circle. As long as we hold above the ‘now broken’ trendline, the market is pretty constructive, however it would not surprise me at all to end next week with a red weekly candle at the bottom of the range shown above and perhaps right on the trendline.

Here are some stocks to watch if the market continues higher.

Join us Monday morning at the open as we take the picks and mark up the charts live.

Have a great weekend.

As you long-timers know, we have always stressed that gold and silver are necessary components of a diversified portfolio. We have discussed it at length over the years and probably ad-nauseam for those that listen frequently. This a a great article that drives home the salient points and is well worth the read.

http://www.zerohedge.com/article/hinde-capitals-ben-davies-gold-market

The question is not if you should own gold as an investment, but how much to own and when to buy it. I will save my long answer for next Wednesdays show, but be sure to watch the Sunday night show where Doug will interview John Rubino from DollarCollapse.com. It will air Sunday night, July 18th at 8:00 PM Eastern Time and will be available to watch on demand after that at http://www.markettoolbox.tv.

Speaking of Gold, it’s mandatory to look at the weekly chart of GLD to see where we are and what to expect.

GLD is nearing a critical juncture over the next few weeks and we want to watch closely. The price is nearing the lower end of the channel support, which coincodes with the 30-week SMA.

GLD and the price of gold may indeed get taken down with a weak stock market. It would make for a perfect cover by those that conspire against gold, but on the outside chance it decouples this time around, we want to acutely aware. Seasonally speaking the summer months are weak and boring for gold and silver and that’s fine. This fall we expect to see some action, hopefully to the upside, but be careful what you wish for…

Gazing at the chart above, if the uptrend holds and the 30-wk MA holds and GLD doesn’t close in the red alert square, we could be looking at a significant fall rally. IF the price breaks down through these key levels, the risk is a pullback to the 1000 level, at which time I will have many things to say about it.

Capital currently dwindling on the sidelines may find it’s way into the yellow ellipse (and metal) and the real party starts in the green rectangle above. Never lose sight of the fact that someday in the future we expect a gold rally that will take our breath away and put us somewhere near the top end of the channel again.

I remember a quote:

politicians shun gold as it acts as a barometer whose price announces how a government is handling their country’s fiscal and monetary affairs

Throw the central banks and the FED and JPM into the mix and it is definitely not in the “powers that be’s” best interest to let gold reach it’s intrinsic value in fiat currency, infinity…

I will likely offer more random thoughts on the subject verbally on future shows.

Honestly, $ilver is the one to watch. Silver, as a long-term investment is my best idea right now. Funny, it’s been my best investment idea for a long time and the ounce I keep in my office dated 1990 demonstrates I was 10 years too early on this one. Nevertheless, if you have grandkids or know someone in their 20’s, let them know if they are able to save money, the true investment of the future is physical silver and they should work out a long-term accumulation strategy and a good time to start is with the price under $20.

One day in the future the idea of buying silver under $20 will be a joke. Don’t let it be a missed opportunity for those you know. It’s a different sort of investment and it’s one of the few things I suggest averaging down on. Since 1990 I have been averaging up, but that fine too.

So the Weekly chart of SLV looks very constructive. Silver is very volatile, but notice how well it has held up in this environment, even with the severe pullbacks in gold these recent weeks.

That lower trendline is some very significant support for SLV as it goes back to the fall of 2008, when “investments” were in a liquidation environment.

Watch closely as silver marches towards the apex of this triangle and keep your eye out for a break to the upside. Be sure to watch the chart of JPM closely if this happens. There may be an inverse correlation.

The best thing that can happen, and the likely scenario, is that SLV chops around for a few more weeks into the yellow ellipse and then breaks one way or the other.

The seasonal chart of gold shows that September is traditionally a good month for gold and happens to coincide with inflection points on the charts above. Whoa..it might be an exciting fall.

So we will be watching closely to see how this battle plays out in the second half of the year.

In the short term anything can happen and there are many forces at work, but in the long run “the people” of the world are slowly awakening to the fact that gold and silver are the only true money and it transcends both time and geography. It always has…

On to the stock market…

Well, this past Wednesday, the pivot scan turned up 69 short trades out of the 200 OEX and SPX components. The short setups were posted in the Research Lab. as of Friday we only have 2 new pivot high short signals, but I will tell you this. I personally looked through 1000 stock charts and almost everything looks like a short. It can’t possibly be that easy eh?

Just a couple weeks ago, right after the 4th of July Holiday, we were getting pivot low long signals on tons of stocks, then everything reversed last Wednesday right when the SPY bumped it’s head on the 50-day SMA.

So let’s take a quick look at the daily SPY.

The red ellipse seems to be the likely area for next week, in which case we will brace for a potential visit back to the Danger Zone.

If for some reason the computers are being programmed to thwart the obvious shorting bonanza, it will be apparent at the trendline break, with a push above the 50 day SMA. In which case we can rejoice at the fact we  formed a lower low and look forward to green ellipse and the 200-day SMA. Wouldn’t that be sweet?

There is  literally a ton of overhead resistance on the chart as we were pointing out last week. The path of least resistance seems to be down unless some really good news break out soon. It seems lately even the good news only provides a fleeting rally so it would have to be significant. Perhaps a second stimulus?

This week is anyone’s call but we think it will be tough trading long for the foreseeable future. All this is consistent with our Monthly long-term timing indicator, which gave a sell signal at the end of June.

The Widows and Orphans are safe on the sidelines in Fiatscos. Hopefully they aren’t loaning the government that sidelined currency for 10 years at 3% or worse for 30 years at 4%, but that’s for another conversation.

The nice thing about the Research Lab is that, as you know, every day it will pick something that goes up, usually significantly.

Case in point from Friday, the Alpha List:

It doesn’t get any better than that folks, especially when it comes to computer generated stock picks.

Have a great weekend and join us Monday morning as we take the open as it comes. As usual we will find stocks or ETF’s that move up and show you what we look for on the charts.

See you there!

Last week we got the tradeable bounce we have been discussing. The market was quite oversold and the pessimism had gotten pretty extreme, so it was definitely due.

Part of the reason for all the bearishness was the fact that everyone’s long-term signals flashed a sell, including ours at the end of June.

Even though last weeks rally may carry into this week a bit, there is a ton of overhead resistance on the charts.

On the Monthly chart we see that the SPY is still below the 10-month and 30-month moving averages.

While we managed to rally out of the Danger Zone for now, we are clearly not out of the woods and expect to revisit this area in the future.

The Weekly chart shows that we are well below the 30-week moving average, which is the main one to watch on the weekly. The 10-week has crossed down through the 30-week, which is not a good sign. It’s similiar to the “death cross” you hear so much about where the 50-day crosses the 200-day moving average to the downside. Decision Point actually used that as their “long-term sell signal” last week.

Here’s what they had to say about the current environment:

Bottom Line: A new long term stocks SELL signal has been generated based upon a “death cross” (opposite of “golden cross”) of the 50- and 200-EMAs. Decisions in the intermediate and short term now need to take this into account. Nevertheless, short term indicators continue to be bullish and and there are now positive divergences on medium-term indicators. So we have a positive theme developing in a negative longer-term context, but we should consider it to be a temporary development.

On the daily chart we can see we are right up against the 20-day moving average. While we might get some follow-through, we expect the rally to get turned back at the trendline.

So we expect the next couple weeks to be fairly choppy as we head into the beginning of earnings season.

In earning season, rather than focusing on the overall market, it will be more important to see the numbers and guidance from individual companies.

It should truly be a stock pickers market as they say over the next few weeks.

Any stocks you are holding or trading, be sure you are aware of the earnings date so there are no surprises.

Here are some stocks we will be watching this week.

Join us Monday morning at the market open in the Research Lab as we take the stock picks and mark up the charts.

Have a great weekend.

The stop-loss “line in the sand” mentioned over and over was breached and the final confirmation was the closing price in June.

To review:

The S&P closed greater than 1% below the 10-month moving average on the last day of the month, hence the sell signal. In the near term we are likely to get an oversold rally, but if you only check your investments once a month, you want to be in “capital preservation” mode.

If the indicator were to reverse and signal a buy in August, the proverbial whipsaw, that’s absolutely fine. I kind of doubt it but it can happen. The beauty of the  indicator is that it prevents catastrophic losses in a “liquidation environment” and keeps you on the correct side of the long-term trend. The inevitable whipsaws have little effect in the big scheme of things.

We discuss long-term investing, money-management and offer the details of our proven strategy on the Wednesday show. If you are not familiar with it or have questions on the 10-month moving average asset allocation strategy please feel free to ask Wednesday.

Right now the indicator says that passive, long-term buy and hold investors should be on the sidelines in June and we will check back on it next month.

So here is the good news…

July 2010 is going to be a traders market and a speculators dream.

The dream starts with an all-cash trading account of “risk-capital”.  Any trading account should be mostly cash at this point, due to the number one rule of always using a stop-loss order on every open position. At some point in the near future we expect one of those “tradeable bounces”. (even if the market collapses first) Many stocks are extremely oversold right now. While it seems we can go down a lot further (and we expect that in due time), we hope for a short-term counter-trend cycle.

We will approach this as a speculators market and trade small positions with a stop under every trade.

Here’s some bad news. Typically we like to see potential swing trade candidates in primary uptrends on the chart. But that is not the case at this time. Each potential trade is a “counter-trend” trade right now, so it will be imperative that we are selective and take profits quickly and move stops up at each level.

So here are the details of this month’s experiment.

First, we ran a basic swing-trade scan which produced the following stocks.

Here is the logic we used in the scan:

5 consecutive closes below the 5-day SMA and 5 lower lows. Today’s close was up from yesterday. Stochastics <20
Stocks between 10 and 60 with average daily vol >500k

The logic for the scan is consistent with the Training Lesson titled “How to Campaign Your Swing-Trades”, available in the archives of the Saturday training in the Research Lab.

Next, we loaded the list into the Pivot Trader software and got the following signals for potential trades:

Out of 41 results from the scan, 29 fired a Pivot Low signal. That seems consistent with the scan.

We have narrowed these potential trades down to 8, which seems to present the most opportunity based on the chart.

Out of these we will load a few into the Trade Plans so we can watch them play out as well as others that may give signals mid-week.

Be sure to check the Waiting Plans page Tuesday morning before the open to see which few get selected.

IMPORTANT: The trades above are computer generated. If this market tanks next week, we would expect most won’t even get filled, but those that do have a high chance of hitting the stop-loss subsequently. Watch carefully for green-candle entries and use a shorter timeframe to evaluate the price action around the entry level. This is a risky time to be trading to say the least, but a great time for this experiment.

By the way, May was a horrendous stop-loss fest in our Trade Plans for a couple of reasons. One was the overall market conditions, where there were days when 90% of stocks were down, the market leaders got crushed, and 8 days in a row of cascading stock prices across the board. Some of the plans filled on red candles which we know is a bad omen.The second reason is that we were “flying blind”, to a large degree as the main system we use to generate trades trades was out-of-order.

We had to wing it rather than just saying “it’s a bad time to be trading”. While we had been cautious, we certainly didn’t expect such a brutal sell-off starting with the huge gap up on the 21st of June . We expected it might a good time for the market to have have a bit of sideways action, but it was a straight down cascade from that gap . We really miss a bit of sideways action, as the market has been making dramatic and schizophrenic moves up and down with little consolidation. The market needs to stabilize somewhere and establish a new trading range before we characterize it as anything but a gamble.

Never underestimate the possibility of a “liquidation environment” like we had in 2008. Don’t hold individual stocks if the overall market is getting liquidated.

In reasonable market conditions we prefer “break-out” stocks in solid uptrends, but as you have seen, it’s been a game of “whack-a-mole” with any stocks that dared an attempt to move up to a higher trading range. Buying breakouts from traditional patterns hasn’t been working, but stop-losses prevented catastrophic drawdown on any one position.

The good news is that this month’s experiment is nailed-down as you see above We will  be using the swing-scan in combination with the Pivot Trader to uncover trades and measure the results.

The key going forward, no matter what, will still be stops. As you gaze at the charts for the trades above, be sure to take note of the stop price.

In this environment we still expect many long trades to get stopped-out, however we can’t catch an up-cycle if we don’t trade. It’s imperative also to trade with smaller positions at this point in time. Until things stabilize or improve we are calling this a “speculators-only market”.

Everyone seems to be so gloomy and bearish at this point, and we certainly don’t blame them. Heck, our long-term indicator just gave the sell.

Before the market opens Tuesday, peruse the potential trades above and see which look good to you. Then check the Trade Plans to see which look good to us and join us on the Live Broadcast as we watch these trades and the picks from the daily scans.

By the way gold and silver closed well above the sell signal. The portion of investment capital allocated to gold  is  invested and has been since January 2009 at about 860.

Personally, I’m not sure that the indicator should be applied to gold or silver. To each their own opinion.  We see all major pulllbacks as buying opportunities, and suggest that “precious metals” allocated capital remain invested at all times. We recommend a long-term accumulation strategy for physical gold and silver, beginning at an early age, in which you use any huge spike down to buy more. I have fond memories of last summer when they took silver down into the 12’s and I scored. If they can repeat it this summer, I’m a buyer in the 15’s. Wish me luck…

I have a lot to say about gold and silver but will save that for another time.

Enjoy the long 4th of July weekend and take some time to contemplate it’s true meaning.

We will see you Wednesday at the open.

We expect a minor bounce next week, however it may not begin first thing Monday morning. Ideally we would see a flat open, then a pullback that reverses up with a red candle that turns green, confirming Friday as a Pivot Low. Conjecture aside we see a potential, though short-lived rally beginning any day.

The magnitude of this really will be extremely important.

All next week we will cover the long-term market charts live on our shows. a week from now is the beginning of July and we will dig into our longer-term signals.

This week we bring you another dozen charts to ponder. These are some set-ups we will be watching.

As we mentioned last week on the Wednesday show, the S&P 500 has traded at the 1111 level 36 weeks in the last 12 years.

We found ourselves at this same level last week.

It’s also interesting to note that the current level is the mid-way between the April 26 high and the May 25 low. Almost exactly at the 50% retracement from high to low.

So we are pretty much sitting right at equilibrium going into earning season.

Based on the range we indicated last week, we have moved right into the middle of the yellow ellipse. Next week will be interesting as we are right at the perfect battle line for the Bulls and Bears. Quite frankly it could go either way next week, but the key is the upcoming earnings season which is still a couple weeks away.

The range has become much tighter and it would seem that last weeks “tradeable bounce” might have run out of steam, but then again the market has demonstrated considerable strength in the last week and it may carry over. In which case we have a “baker’s dozen” stocks for you to watch.

Here are the pictures.

Those are some stocks we will be watching and discussing next week.

Check the Trade Plans before the market opens each day to see which stocks make the cut.

To all you Dads out there, have a Happy Father’s Day and enjoy your weekend.

The past few weeks have been tumultuous to say the least, but the good news is that we managed to hold above 1040 on the S&P and our stop-loss did not get triggered at the end of May.

Headed into the third week of June, we are looking for a tradeable bounce, though the market faces significant overhead resistance.

The stop-loss “range” on our long-term timing signal is shown on the chart by the yellow rectangle and a weekly close “below the zone” would trigger an overall sell. However we think at this point the market may have the propensity  to “climb the wall of worry” and move up. We expect more choppy trading and volatile swings but we think some stocks are poised to make a run.

Zoomed in a bit, the weekly chart is actually quite constructive, but you can see the 10-wk and 30 wk offer significant resistance.

The daily shows exactly where we are and offers some insight into where we might be going in the near-term.

The 200 day moving average is the one to watch on the S&P. We expect to do some battle with it in the lower ellipse, then potentially move into the upper ellipse. The thin green line is a major resistance point. Down the road near the end of summer we see the potential for a head and shoulders to form on the Weekly timeframe. They are rarely perfectly symmetrical.

The past two weeks were essentially too choppy for our Trade Plans, This most recent cycle was not kind to swing traders and after a stunning performance in May, we were not going to let marginal trades through the filter.

However at this exact point in time we see more and more charts becoming constructive and we think the following stocks offer potential.

UCO ProShares  Ultra DJ-UBS Crude Oil is poised for an intermediate term move up, beginning in the next few weeks. We would like to see a few more weeks of action between the yellow and green range, then a break above the green line. We are still in observation mode with the clear notion that if UCO is headed to 12.50 or higher, it has to trade at 10.50 on the way up.

On the image you see the details of the Trade Plan from May.

PCX looks like a good potential “bounce play”

FSLR might actually have a chance of moving higher over the next few months. At least the bottom is clearly defined and we are getting a trendline break. A little sideways to up action looks likely.

Let’s take a look at gold and a few gold stocks we like.

First, the weekly chart of GLD. Simply magnificent. You can almost see the perfect cup and handle pattern forming. We will likely see a couple more weeks on the handle, but after that, if it breaks to the upside we expect a major leg-up to the top of the channel.

The gold “doubters” likely have a bit of time left to try and convince investors that gold is not the go-to investment, but the clock is ticking. Summer is usually dull for gold and we expect sideways to down action over the next few weeks, but after that we see new highs.

Here are a few gold stocks that look really good right now. They will definitely be on our focus list when gold starts the next leg up.

We might be  little ahead of the curve on these gold stocks, but we want to get them on the radar screen right now.

If we can get a little sideways trading and consolidation in both gold and these stocks, a break out would represent significant opportunity.

So next week should be fairly exciting. Barring any unforeseen events we expect there will be more opportunity for long trades than we have seen in weeks.

Be sure to copy our Focus List of stocks on the Research Lab homepage and paste them in your charting software. They are the market leaders and all have very constructive charts. Some are setting up perfectly for an upcoming rally, but each chart must be evaluated separately.

We should see a lot of stocks move above their 20-day moving averages this week and we will see a lot of steep down trend lines that get broken, even if they move sideways.

Taking profits quickly will be the name of the game next week. If you have a profit, take at least some off the table as soon as possible. The risk of a big down day still looms.

I realized last week that the negative market sentiment just appears too prevalent. Too much doom and too many calls for a collapse.

The “wall of worry” has been built, brick by brick. I could list a dozen bricks easily, but we all know the wall is there.

We also know where the “line in the sand” stop-loss sits.

Speaking of volatility, I found this interesting chart on a blog recently that shows just how volatile recent years have been compared to the good old days.

So we will take what the market gives us over the next couple weeks, but from our perspective we think the market is going to give us some great trades starting….right about now.

Catch us at the opening bell Monday morning as we mark up the charts on the real-time stock picks and discuss the Trade Plans for next week.

Enjoy your weekend.

Let’s start June with our long-term, hands-off technical signal on whether to be in or out of the market, as a buy and hold investor.

Our Sell Signal on the Monthly time-frame did not trigger at the end of May. The close was well over our stop. Therefore the indexed equity portion of a long-term diversified portfolio should remain invested going into June.

However we will offer some potential stop targets, should things go quickly South.

The Monthly chart of SPY gives the best clue. We closed May right at the convergence of the 10-month and 30-month moving averages. What a precarious spot.

Our line in the sand at the May’s EOM close is indicated below by the yellow rectangle.

Going forward, we will use the “Danger Zone” right below the 38.2 Fib retracement as our “capital preservation” stop.

We are in a new channel that could potentially be construed as constructive. However recent events warn that anything can happen.

We will proceed with extreme caution.

Based on the Weekly chart below, we will suggest long-term investors keep a keen eye on each weeks close and choose a protective stop between S&P 10400 for conservative accounts and 10014, for those that don’t want to get whipsawed with intra-week volatility.

Anything in the yellow rectangle is danger territory, but there is potential for the market to battle it’s way up through the channel.

On the daily chart below we see the potential for a rebound or tradeable bounce.

However the overhead resistance at the 200-day,  and subsequently the 20 and 50 is substantial.

We will be impressed if the market can battle it’s way up this channel.

We have seen the market scale numerous “walls of worry”, so we will remain optimistic, but keep our “line in the sand stop-loss” somewhere in the range described above.

Widows and orphans can relax for now without having to worry about moving to cash based on the Monthly close.

Moving on to our Swing-Trades last month, here are the Research Lab Trade Plan stats for May.

As you know, we typically average 10 trades per month but May only had 5.

We still have 1 open trade that has hit Target 2 and the stop-loss moved up.

When NTRI gets closed, it will go into the May 2010 stats, which were quite respectable in our opinion given recent market conditions.

UCO was a well-timed entry and the price exceeded Target 2 by some measure. It will be interesting to see where oil goes from here.

UCO, which is 2x long oil, might have upside potential going forward. If one were fortunate to have taken partial profits all all three targets,  retaining a small, low-cost position might turn out quite profitable.

As you know, when the targets get hit the system closes the trade, but part of our strategy revolves around retaining a small position if you are so inclined.

Let’s look at NTRI, the only open Trade Plan carrying over into June.

With T2 in the bag, it’s a no-lose trade at this point and will only serve to make the stats above look better.

In May we took the spider approach as we have discussed here. Rather than trying to overtrade in tumultuous conditions, we were much more selective and waited for just the right set-up.

Of course there was the GTN spec play on a three dollar stock, but we discussed that last week.

All in all I am calling it a good month for Research Lab members. The stats above speak for themselves.

Honestly the swing-trades pale in comparison to the real-time stocks picks we saw almost daily last month.

There were tons of good picks and literally everyday we knew exactly which stocks were making moves.

Research Lab members can easily review the picks for any trading day in May using the Calendar tool on the Performance Tracking page.

We urge you to look back to see the picks at the close of each day. It’s a quite interesting review indeed.

So what do we do in June?

We take it up a notch.

Our loyal Research Lab members are in for a pleasant surprise. We are about to introduce several new features that will add extraordinary value to our tool-set.

Let me give you a sneak peek.

One new Module consists of 4 files geared toward swing-traders.

Pivot High and Pivot Low signals are generated using the S&P 100 and the NASDAQ 100 and presented as an image. They offer potential trade entries going into the following week.

We are also including 2 new scan result lists. The 90-90 list and our “Stocks to Watch” list.

Each week we will bring you the “best of the best” stocks for your radar screen. These are the raw lists we use as a starting point to find trades. Many of the stocks will be familiar to those that watch the daily picks as they tend to correlate. The cream of the crop so to speak. Each day our system scans for the best stocks and now we will offer our weekly scans for your viewing pleasure.

The nice thing is that the 2 new scan lists are in text format and easy to copy to any charting program or Level I screen.

More details are included in the actual files and we will discuss details on the show.

But that’s not all…

We have redesigned the Research Lab Home page and I think you will agree that it’s a big step forward.

Rather than give it away here and show an image, we will let you see for yourself very soon.

Just a few finishing touches and one day soon you will wake up, log in the Research Lab and say “wow”.

Our best days lie ahead and we sincerely appreciate the support of our Members.

Enjoy the long holiday weekend and join us Wednesday morning at the opening bell.

Welcome to the last trading week in May, 2010.

“A good signal jumps at you from the chart and grabs you by the face – you can’t miss it! It pays to wait for such signals instead of forcing trades when the market offers you none.

Amateurs look for challenges; professionals look for easy trades. Losers get high from the action; the pros look for the best odds.”
- Dr. Alexander Elder

Friday’s snapback rally was encouraging, however our Long-term market timing indicator is nearing the “Sell to Preserve Capital” signal.

IF the monthly close Friday, May 28th, is below the red horizontal band, the sell is triggered. Use that information in a way that makes sense to you, but my thinking is that the signal triggers a “Capital Preservation” switch, that moves long-term investments to cash equivalents in the long-term investing account. The investing account is indexed to the overall market and is separate from the trading account.

Remember, the signal is only valid on an EOM (end of month) close, not an intra-day poke below. Should it get triggered, it is very likely the market will bounce and then  in June I will have to buy back in, but the whipsaw is just fine with me. I refuse to take a significant drawdown on the outside chance the market is headed much lower.

We are giving our traditional signal a little “leeway”, using previous lows as final support. Typically with Market Timing you want to avoid whipsaws. So we are using the February low as the trigger level instead of the “1% below the 10-month” close trigger. Volatility is up dramatically and I think this extra leeway makes sense. But then I don’t classify myself as a “conservative” investor.

One week from now, we will know for sure. We sincerely hope the market finds it’s footing, but hope is not part of this timing signal, so we will “trade what we see”, not what we hope…haha.

Here’s a closer look at the “line in the sand” on the Weekly chart. Notice we closed below the 30-week, which puts us on “high-alert”. Often we suggest more conservative investors reduce exposure on that weekly break. Of course we were suggesting “reducing exposure” several weeks ago near the top of the channel when it was clear the market was overbought and bumping up against the 61.8% Fib retracement from the March low to the recent high.

Notice on the left side of the chart I included Fib the retracements that should act as support if the market trends lower. The 38.2% retracement of the current move lies just a hair below our trigger, but it’s the Monthly closing level we will focus on.

Suppose the Monthly sell gets triggered and the market turns right around and heads back up?

No worries at all…a month from now if we see SPY close above it’s 10-month simple moving average, we just point-click and buy back in. In the case of a whipsaw or two, we expect that many accounts would easily bear the burden of a couple transaction fees, equivalent to about what I spent on lunch today. The “family 401k” actually doesn’t have any transaction fee to switch from equity funds to money market. To preserve capital I will “sell first” and ask questions later, IF the sell signal is triggered.

The biggest risk to this timing strategy occurs if the sell is triggered, then the market immediately turns around and rockets up. Then in June we may have to buy back in at much higher prices. A possible, but not very likely scenario.

The biggest risk in not taking the signal is that the market gets hammered and we enter a 2008 type “liquidation” environment. Every “investor” remembers how quickly things can go south, and that’s why we firmly believe you have to time the market. Anyone that held GE from 40 to 6 learned a valuable lesson.

If you weren’t a member during the 2008 meltdown, read the original post: http://blog.investingsystems.com/date/2008/07/.  Doug actually “rang a bell” and declared “the top is in” at the office at the beginning of 2008 while we were live on the air doing our radio show. It wasn’t until July that we introduced the Members Blog.  but here’s the recording of the January 2008 radio show . Be sure to stare at a chart of the market as you listen to get the perspective and follow our comments when the S&P was near 1400.

Now, on to trading stocks…

Yes we are stock traders and active speculators and no matter what happens in the big scheme of things, next week might make for some great trades. The volatility is up and we are seeing extraordinary intra-day swings on many of the picks in the Research Lab. Several days last week, when the market was getting crushed, we saw tons of inverse ETF’s make well over 5% daily moves. We also saw lots of stocks that bucked the overall trend and moved higher, many significantly.

We are stock traders in any environment and have been since stocks were trading in fractions..whew.

Let’s move on. So far in May, with one week to go, there have only been 2 Trade Plans. One got stopped-out and one hit all three Targets. 1 winner 1 loser and lots of “sideline time”. Actually, since we average 10 Trade Plans a month, the “lack” of new plans in May indicated all was not well. A subtle clue perhaps?

So let’s look at the 2 closed trades.

Below you see GTN, a wild speculation, and well worth the lesson on always using stops. The green line is the buy and the red line is the stop, and the yellow circles show the false breakout and subsequent stop target.

Imagine being foolish enough to not have a stop-loss? We didn’t think so.

THOR is our winner so far and the arrows show the Entry and Target 3.

As you can imagine, the main reason that we have not had many Trade Plans this month is due to market conditions and broken charts. In the past 16 months we averaged 10 trades per month. Then something strange happened. As the market got more and more overbought we were getting less and less results form our swing-trade scans. We had reached the top of the cycle and potential trades practically dried up.

Then came the “pullback” and “flash crash”, which resulted is proliferation of “busted charts” and broken patterns.

For daytraders the action has been fine. Day after day the Stock Picks have been a plethora of inverse and leveraged inverse ETF’s, and some like the VXX have made significant moves over time.

Even with the recent carnage, save Friday, we are starting to get some potential trades and are able to identify a small list of stocks that make a great watchlist for the upcoming week.

Here’s a just a few charts we find interesting and will discuss this week on the show.

Now for the good stuff.

Here is our “Focus List” of stocks for next week. These have real potential as you will see when you go through them in your charting software.

AAP
BJ
CATM
DLTR
FDO
HAIN
HAUP
LCC
NOVL
PTV
QSFT
RMBS
SCS
SOLR
TLAB
UHS
WNR
RADS
APKT
VCI
MBLX
SPRD
CSTR
VRX

Obviously this is not a recommendation to buy these stocks. Our system has simply identified them as some of the best you will find at this point. Chart em and see for yourself.

Many members will recognize some of the stocks from the list above. They were picks last week in the Research Lab. CATM and HAUP come to mind as we were following the charts live on the show. Friday’s follow-through on CATM was quite impressive.

I know for a fact that the intra-day scans in the Research Lab will give us a lot more stocks to watch this week. The stocks above simply make for a good watchlist to start the week. We may even find a couple that pass the rigorous internal system and show up as Trade Plans. Keep your eye out for new Trade Plans this upcoming week as we are on the verge of a potential tradeable bounce from oversold conditions.

It’s going to be one exciting week ahead for traders, while long-term investors anticipate the monthly close with baited breath. (whatever that means).

We will definitely be on the edge of our seats…

So please join us at the opening bell Monday morning as we set the game plan for next week and mark up charts of the picks live. As you know, we have recently done some back-end technology upgrades to our system and beefed up our servers. The transition is almost complete and we have several new modules on deck. One of them is the new “Strategy Room”, where we will present  short videos that nail down specific tactics you can use.

The Strategy Videos will cover topics such as our scale-trading technique, sweet-spot trades, intra-day entry points and much much more. The upcoming video series for Research Lab members will give you specific techniques you can use over and over to make money trading and avoid the pitfalls.

We will answer all questions and share more on the Live Broadcast next week. See you there.

Have a great weekend and get some fresh air.

We would characterize the current market environment as quite dysfunctional.

While our long-term market timing indicators have not officially signaled a sell, it’s no mystery we have been cautions for quite some time. We continue to suggest, as we have for weeks, that one must be acutely  aware of account drawdowns. This holds true for both investment accounts and trading accounts. Basically we see no reason to hold any equities through another 2000 or 2008 type of market.

We warned at the top of the weekly channel that an “investor” should calculate the potential drawdown should the market retrace the bottom of the weekly or monthly channel. Investing is very personal, and one has to evaluate their own propensity to sell first and ask questions later. We have also suggested that an incremental strategy of scaling in and out at specific technical levels is the best way to actively manage your investments.

Daytraders don’t have these problems. Long, short, hedged, cash, or sidelines mode, it doesn’t matter as each days trades are actively managed. Traders know that CASH is the primary position that allows you to do battle tomorrow and next week. I talk to more and more traders that don’t hold anything overnight in this current environment. We hope things stabilize a bit so we can go back to capturing multi-day runs, which produce the largest profits.

Recently on the Wednesday evening show we commented that if one were an active market timer they might take some equity off the table to redeploy later at lower prices. It’s not time yet…

We are Market Timers and our basic timing strategy is quite simple. If, on the LAST DAY of any month, the SPY closes on the opposite side of the 10-month Simple Moving Average, that’s the signal to get in or out. On the first day of the subsequent month you either move your investments to cash or you use your cash to reinvest.

No indicator is perfect and there will be months where the indicator says to sell, then the following month you have to buy back. But the beauty is that you will always be on the correct side of a major trend. Simple as that. If there are any “Widows or Orphans” reading this, please write it down as it’s a great “hands off” way to manage your own investments rather than turning it over to the so-called “professionals”, who may have ulterior motives and nefarious agendas.

As “proactive” traders and investors we can build on this simple strategy using the 30-week moving average and perhaps even the 200-day moving average, but the philosophy is that you MUST “time the market”.

To illustrate this simple principle let’s look at the monthly SPY going back a couple years to see where the 10-month moving average cross signaled an “adjustment”

The sell signal was December 1, 2007 or January 1, 2008, take your pick. It really depended on how close you zoomed in on the price and moving average or which charting platform you were using. The price at the end of Dec was right on the 10-month and subject to interpretation, but there was a clear signal on Jan 1, 2008. The yellow arrow is signaling caution at this very moment as lows so far this month are indeed below the 10-month. We still have to see where it closes on the last trading day this month in relation to the moving average.

Just about everyone is familiar with the old “sell if below the 200-day moving average” rule, but we prefer to use the monthly indicator since we are working within the context of a long-term timing strategy. We find the 30-week and 200-day MA’s to be great ‘confirming” indicators. For this purpose we will focus on the forest rather then the trees.

Notice the buy signal on the chart indicated by the green arrow would not have got you back in at the bottom. That’s just fine with us as the timing indicator is not designed to get you out at the top or in at the bottom, it’s designed to keep you on the correct side of any major trend that develops.

With trading commissions so low and the ability to point and click to easily move investments to cash equivalents and back to investments, it does not matter that there will be zig zag months that straddle the moving average.

It’s interesting to look back even further to see the last cycle. Here is a chart of the SPY from 2001 to 2008.

The red and green squares indicate buy and sell signals, while the yellow ellipses show the ‘fake out” moves where you buy or sell one month, then have to make the opposite move in the next few months.

With a sell signal given at the end of 2000, you would not have bought back in until the beginning of 2002, which was a false signal of sorts as you would have turned right around and sold again the next month. BUt look what happened then!

By the way, the indicator would have had you out of the market on Sep 11, 2001…

There’s not much more I want to add on this post as we will cover this in-depth on the Wednesday show, where we can discuss some of the more detailed aspects of market timing.

The take-away from this post is to help educate friends and family members that might not be in tune with this type of strategy. There are many “common investors” out there that have been conditioned to buy and hold no matter what and have been told for decades that the market can not be timed. They are probably just now recovering from losses incurred in 2008, and might be receptive to the idea of “preserving capital” should the recent “correction” turn into something more dire.

At the other end of the spectrum, we, as traders, are on the edge of our seats with the current volatility. The intra-day moves that individual stocks are making are perfect for long-short, in and out trading. The average true range of most stocks has increased considerably, providing opportunities to trade both ways. For those that don’t short individual stocks, the inverse and leveraged inverse ETF’s are useful for scalping a few percent on big down days.

We suggest it is a good time the to focus on the Daily Market Bias indicator in the Research Lab during the day.

This indicator consists of only 8 potential symbols, the 2x Long and 2x Short the 4 major indexes.

The real secret lies in the fact that it is measured from the OPEN price each day.

If the market gaps down real big, then spends the day going up, you will see the 2x longs.

If the market gaps up then falls, you will see the 2x shorts. Even though the market may be up or down from the previous days close, we are measuring the directional move off today’s open. What’s more is that the magnitude of the move is indicated by the percent change you see displayed in real-time.

For instance if we see less than a 1% move in these leveraged ETF’s, we know the market is relatively flat from the open. We may also see periods when there are both long and shorts showing up,and we know there is not a clear direction yet off the open. When we see these ETF’s move over 1% at any time and all 4 symbols represent the same side of the market, we know there is a significant directional move.

Some days the indexes flip back and forth on both sides of the open, and the daily market bias allows us to monitor the trend visually.

We talk a lot about using the red or green daily candle as a sort of intra-day timing indicator and the Daily Market Bias meter accomplishes essentially the same thing.

In the current choppy and volatile market environment we can use this gauge to our advantage each day and we will be discussing this in depth next week on the Live broadcasts.

We will present some ideas on how we “time the market” on an intra-day basis using both ETF’s and stocks.

Moving on, we would be remiss if we didn’t discuss gold and silver. As we have been saying for quite some time, they are the only true money. Fiat currencies have come and gone over history but gold always preserves purchasing power over time and geography.

The price of gold is now the highest in nominal dollars is US history, however in inflation adjusted dollars it still has a long way to go to even match the highs of 1980.

We use GLD as a proxy for the price of gold, however we only trust the ETF as a trading vehicle as it is settled in cash, not physical gold. Below is a monthly chart of GLD.

We think the likely trading range of GLD lies in the yellow circle for the near future, however we can’t rule out extraneous events that send it much higher. Our eventual price target is infinity when priced in fiat currency.

“Politicians shun gold as it acts as a barometer whose price announces how a government is handling their country’s fiscal and monetary affairs”.

There are certain “powers that be” that constantly fight to keep gold from becoming the “go to” investment in times of turmoil. They orchestrate “take-downs” to scare off ordinary people and cover short positions. Based on the chart, the upward sloping trend line would be a good place to consider taking a position if it were to trade back down there.

The old saying “put 10% of your money in gold and hope it doesn’t work” comes to mind. We have expanded on that to include perhaps another 10% in silver as we honestly think silver will outperform gold in the long run for many reasons.

One is the gold to silver ratio. Right now it takes 63 ounces of silver to buy an ounce of gold. The earth’s crust contains roughly 16 oz of silver for every ounce of gold, so Mother Nature provides the best benchmark. Over long periods of time ratios like this that get out of whack have a tendency to revert to the mean.

Let’s look at a monthly chart of SLV, which we can use as a proxy for silver.

We see a clear breakout on the chart of a triangle pattern going back two years. While we suspect some backing and filling on both gold and silver, this indicates higher prices down the road.

We have been suggesting for years that anytime physical silver can be purchased for under twenty bucks an ounce, it is a bargain and the idea is to slowly accumulate physical silver until you can no longer pick up and carry it. Silver has a long list of reasons as to why it is an excellent investment but I won’t go into all that here. You can easily find articles that explain in detail why silver is a true investment with almost unlimited upside potential.

Some of the best articles on gold and silver can be found at:

http://www.financialsense.com

Last but not least, here is that chart of IFLG we were discussing last week with some marks showing potential entries, scale-out targets and stops. It’s not everyday one of the picks makes a move like this but we do see it frequently. This is just another example of our intra-day entry strategy that we will explore in-depth on the show.

Have a great weekend and join us at the opening bell on Monday as we demonstrate these techniques live on the charts of the picks.