I use two market timing checklists when assessing markets. The first is more of a macro intermediate termed view. Long-time readers of this blog will recognise the name “Bear-o-meter”—which is the name I’ve given to a cumulative value given to a checklist of indicators I follow. The next is a short termed system, that I covered on this blogsite about a year ago. It’s been pretty good at picking very near-termed peaks and troughs. But it’s not for the longer termed investor. Let’s look at what both of these indicators have to say right now.
Intermediate termed Bear-o-meter
The Bear-o-meter is designed to give us a probability reading of market direction over the coming 1-6 months. For those who have followed my work for the past 5 + years, you will recall the signals it gave before the 2011, 2014 and 2015 market corrections. It consists of:
- Advance / Decline(A/D) line slope and comparatives to S&P500 slope
- Trailing PE
- S&P500 relative to 200 day MA
- S&P 500 relative to 50 day MA
- Smart/Dumb money spread
- Put/call spread
- Dow INDU vs. TRAN correlation
- # stocks over 50 day MA levels
- VIX level
- NYSE New High/New Low level
Various indicators are assigned different weightings. The grand total is tallied according to the values each indicator reads on a given day. From there, a zone of buy, neutral or sell is indicated.
Recall that this compilation of indicators is intermediate termed in nature. It also needs to be revisited regularly.
At this time, we have a “neutral” reading on my Bear-o-meter”, but that neutral reading is close to the “sell” end of the zone. I will re-tally in a week, and report on this blog if we move into sell zone. Charts of the Smart/Dumb Money (www.sentimentrader.com) and the VIX below show you why the indicator is near the bearish end of its scale. However, the MA’s and A/D line are bullish on all counts. So we have a neutral reading.
Short termed trading system
As noted above, I covered this trading system a year ago. Like all good systems, it is simple to understand, and thereby highly useable by most traders. The fault of most systems, even the Bear-o-meter, is their complexity. Less is more.
Below is the chart for my simple short termed timing system. It’s this simple:
SELL – If we get a lineup of an overbought stochastics, RSI and an upper Bollinger Band touch. They must happen simultaneously and coincidentally. 2/3 don’t count.
BUY- If we get a lineup of an oversold stochastics, RSI and a lower Bollinger Band touch. As with a sell signal, they must occur simultaneously.
As you can see on the chart, we have a short termed “SELL” indication from this system. The Bear-o-meter, on the other hand, is in neutral (although the lowest end of the neutral zone) territory.
Thus, my thoughts for the time being are that we may see a relatively short termed, shallow correction in the coming days. If we get a bearish reading from the Bear-o-meter compilation, we might expect a higher probability for an extended correction. That’s not the case at this point of writing.