“Buy when there’s blood in the streets, even if the blood is your own.” – BARRON ROTHSCHILD 18th century British nobleman
I’ve presented this trading system a few times in these blogs over the past number of months. It’s been quite accurate at picking peaks and troughs within the current sideways market. Right now, this system is on the cusp of flashing another buy signal.
The lower Bollinger Band has been tested – and even briefly broke intra-day on August 12th. That’s part one of my system. Next, Stochastics is hooking up, albeit from a “less oversold” level than it has in the past. Thus, the market could sell off a bit more before this one flashes a strong signal, but we’ll give it the benefit of the doubt for now. Finally, RSI did not reach its oversold line. Nor has it hooked up with any real conviction. It’s not in a “buy” position yet.
I’m inclined to buy on an RSI hook even if it doesn’t reach full “oversold” levels (although that would be preferable), but I do need that hook. I’m giving it the next few days before moving on anything–but its getting closer. We could see a move back down to bump along the lower Bollinger Band and create more ideally oversold conditions. So I’m holding off temporarily , and I’m preparing to buy if I see a sharper move on RSI. That’s the safest bet for now.
Beyond the short termed signals, what is the longer termed view?
Last week the 200 day MA was cracked, although only on an intra-day basis. That’s not a deal-breaker for long termed investors. Remember my sell rules. A long termed sell is instigated ONLY by the following signals:
-Lower high (both must be present)
-Break of the 200 day MA on the closing price for more than 3 days—longer termed traders can look at a 3 week break.
We’re not seeing a long termed sell signal at this time based on the above parameters. Shorter termed signals per my system above can continue to offer value in the sideways market. Should the above 3 longer termed rules kick in—abandon the short termed trading system, hold onto your hats and hedge your portfolio. Now is not that time.
Market sentiment is so bearish now. Normally, it’s presenting a good buying opportunity.
Actually–my favorite sentiment indicator, which is a compilation of indications from 2 groups (smart and dumb money) is very, very neutral right now. We’re not at an extreme yet, and nowhere near a buy signal – at least from the sentiment study side.
Would you consider a rise in interest rates to affect the market negatively? Do you think that it would signal to the market that the economy is in good shape and equities would do well generally? Would this affect your short term trading?
The bottom line to me is support / resistance. A break of the S&P on either side (by 3% over at least 3 days) would signal a potential new trend in the direction of the break. All other factors and events are and will be factored into price (Technical Analysis 101).
Support is about 2035-ish
Resistance is about 2040-ish
Interesting that apple is making lower lows and lower highs on the daily and has been under the 200 day MA for almost 3 weeks. As they are one of the largest cap stocks could they be sending a signal that the rest of the market will follow apple lower as well?
You got it Dave–often when a market leader falls, its a sign of more bad stuff to come –so far that has been the case–markets have been rather volatile.