Some of my long termed readers might recall the “Near termed timing system” I look at for finessing entry/exit points. It’s actually fairly reliable in its signals–albeit very, very whippy. Because its so whippy, it’s not necessarily something you want to trade off of. Executing buy and sells based on this systems signals will have you in and out like a yo-yo. Instead, I like to use it to try and figure out what the odds are for a very, very neartermed move on the markets. If I hold cash, I will look at this system to see if the market is nearing an entry point on the nearterm.
The system isn’t magic. It can issue false signals. But, it’s generally been pretty helpful in my neartermed analysis. Its simple to set up. Basically, I use a daily chart that looks at Bollinger Bands, stochastics and RSI. If I get corresponding “overbought” levels on all three indicators simultaneously, that is a sign that the SPX may be ready to move down a bit. If the opposite occurs (oversold on all three indicators)–we have a sign that perhaps we’ll see a bounce.
But understand that this is entirely neartermed work. The larger trend is what counts for positioning. A stock or market will exhibit numerous overbought or oversold periods within a bull or bear trend. You dont sell a stock in an uptrend just because its overbought in the nearterm. I use the system to take a look at the health of the trees, so to speak. But I don’t lose sight of the forest when viewing overbought/oversold neartermed signals. The forest (trend) is what counts–not an individual tree (neartermed signal).
Below is the neartermed timing chart with the 3 indicators. Green is bullish, red is bearish. Note the recent overbought signal that lead into the pullback early this week. Note that the system has not yet signalled oversold yet, but its pretty close. Today I see the market pulling back as I write this blog. Perhaps today will signal a neartermed oversold (buy) point. The big picture, as you can see on the chart – is bullish. The SPX broke out. The forest is in fine shape.
As noted on an Monday’s blog, the week following Black Friday can be a bit choppy. This week has held up to that reputation. I noted that any pullback might present a buying opportunity. Although we have yet to see a full “oversold” entry signal on the neartermed timing chart above- we do have one potentially positive entry signal. If you look at the closeup view of the SPX daily chart below, you will see a hammer candle from Tuesday’s price action. Sometimes markets reverse on hammer (the body of the candle lies at the top or bottom of the days move), or a spinning top (short body candle the lies near the middle of the days move). The gap (island) of that candle added a bit more impetus to its significance. Gaps on either side of a reversal candle can be termed “island reversals”. No guarantees here, but certainly they increase the odds of a positive move.
Its difficult to call this as the defining entry point – but the seasonals are there to support a bit more upside. Take that for what its worth.
Thank you for all of those attending the first ValueTrend Technical Analysis Webinar yesterday…. and… Thank you for your patience with the audio issues – we will rectify the issue for next time and make sure everything is smooth sailing.
We’ll be re-recording the seminar with better audio and posting it on our YouTube page here by the end of this week, and so will any future recordings.
The next ValueTrend Webinar will be on January 10th 2020 at 2:00pm Eastern Time.
You can register using this link and all the information will be provided there.