Well, what a week we just had in the markets!
As you know, the 200 DMA (daily-moving-average) is programmed into almost every automated trading platform of institutions as a key bull/bear line distinction. And while its violation creates significant selling pressure, like last week, it doesn’t mean we’re into a full-fledged bear market. We may very well have an explosive rally soon just because there are a lot of day traders positioned in shorts and the market has an uncanny way of flushing out any inexperienced speculator, long or short, during transition periods. Can we catch these rallies in time to have a long trade? It remains to be seen if all the ducks get in order for our trader system to take a position.
It’s important that we get a deep low formation for both the Dow and NASDAQ if we’re going to have the kind of substantial short covering needed for explosive reversals. We may be close after last week’s little bloodbath. This was no surprise because weeks ago we could see that large institution’s volumes in many U.S. market sectors, and to be precise- 30 sectors out of 36 that we track, were dropping. During 2015 we really haven’t had the kind of sustained rallies that keep a bull trend advancing. Rallies end up weaker these days, lasting about a week at best, and are almost always followed by huge sell-offs that take back most of the rally gains and sometimes more.
As long as rates remain low, even after the Fed’s increase that is coming due, chances are high that the bull market will resume. During these declines however, you’ll typically see money moving into Treasuries for safety. That’s happening now but it’s more of a knee jerk reaction to this year’s chop and the current decline. But it will end abruptly when the next cyclical low results in an explosive move higher.
For now, short term trades remain the rule, particularly in our Index Trader systems. Both Portfolio Systems are in fully in cash and have been for more than two weeks.
Let’s talk about Cash as a position in itself shall we? An important aspect of our system is that it rarely loses any money when the long term cycle is moving down. We are careful about waiting for the stars to be aligned in order to make the right call. Not losing money in a decline is as important to us as making money. Once the market gets some base then we get in to make a good buck. So stay tuned!
U.S. Index Trader:
Canadian Index Trader:
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A note of to all our Canadian subscribers: In regards to XLB.TO, please make sure all your traders are entered as a fix price order due and not a market order, due to low daily volume. This is only for XLB and does not apply to XIU or XFN.
US Equity Sector Portfolio
US Bond Sector Portfolio:
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