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Monday, August 15, 2005
Market Recap
Oil prices pulled back today and when that happened, stocks staged a nice turn around this morning after starting the day lower. At one point the DOW was down 43 points but managed to reverse course and head up to close with a 35 point gain. The NASDAQ gained 10 points, the S&P was up 3 points and the RUT was higher by 5 points. Volume was extremely light and traders are either enjoying the last couple of weeks of summer before the children go back to school or they are waiting for a slew of economic data due out this week starting tomorrow with the CPI, followed by the PPI on Wednesday.
The indices are still in decent shape but we must remember that history has shown September as the worst month for the stock market. History does not always repeat itself, however we should always be aware of market history and take that into consideration when trading or building a portfolio. September is just around the corner so keep your stops in place and be ready to act on them if need be. After Labor Day, volume will certainly return into the market. If institutions come back from their summer vacations in a selling mood, this market will go down on much more volume than the light volume it rallied on all summer.
Measuring the Market
Markets go up and down because the majority of the stocks within any given index go up or down. As a result, by watching the direction of a particular index, we can assume that many of the stocks will follow the same direction of that particular index. Knowing this, we place the odds of a successful trade in our favor if we trade in the general direction of the markets. The question now is, how can we measure this direction and how can we measure the sentiment of the majority of market participants?
Market Internals
Market internals are used to measure levels of greed and fear. This is a very important and underestimated part of trend following. We use these tools to try and understand and determined the odds of the next market move. When the market internals indicate a bullish environment, it is better to trade on the long side of the market and look for bullish (long) setups, contrast to the bearish indications when we would want to be short the market. This is because we want to trade in the direction of the trend. At extreme levels, these internals can sometimes suggest that the odds of a reversal are very high through an overbought or oversold reading. As with everything else in technical analysis, the trend is king. Even if market internals suggest at any given time that a stock or index is overbought or oversold, it does not mean that a reversal is near. Prices can continue to climb or drop steadily even though the signals are overbought or oversold. A market or stock could be in an oversold state for weeks, as measured by internals, and never produce a significant bounce, or overbought and not have a reasonable pullback.
TRIN
A contrarian indicator that works well in sideways markets is the TRIN, however, it does not work well in trending markets. Consider, for example, the daily TRIN of the market, symbols $TRINQ for NASDAQ and $TRIN for NYSE. This is an inverse indicator that measures volume in advancing and declining stocks. We use a daily chart of the TRIN with 5 and 10 SMA's. Whenever one or both SMA's penetrate overbought (0.8) or oversold (1.2) areas, this internal indicator signals the odds of a short-term reversal in the markets is good. Keep in mind that these readings represent only a possibility of a potential turn in the market. We need price confirmation in order to have a reliable signal. An example of conformation would be a daily candle reversal bar on the indices breaking though a support or resistance level at the same time, the 5 SMA or the 10 SMA penetration of the 1.2 or. 08 area on the TRIN. The TRIN alone will not work if the market is trending up or down, this is why combining these two events (reversal daily candle with TRIN) would be a more reliable reversal signal than the internal TRIN reading by itself. Consider also that the TRIN might suggest this potential turn days before the actual reversal occurs. So, as a rule, you should watch the internals and the TRIN, and then wait for prices to confirm for a valid reversal signal.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
Stockcharts Listing
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