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You missed it! Market Posture!

March 29, 2007
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Or maybe you didn’t and were there. In any case, we had a great meeting tonight! Lots of nitty gritty and educational discussion. Good crowd of regulars and contributing newcomers too. Thanks to all for your presence and participation. Special thanks to Margie for a great presentation on her 20/40 moving average crossover system. Indeed, it seems that keeping it simple is really smart, STUPID! (K.I.S.S. The bold printed STUPID is really directed at myself) 🙂

As always, we started off with a (not so) quick jaunt through the market posture exercise to establish a relatively objective stance on the market. It seems to me like I should get through that process faster, but particularly at a time when the direction of the market is very much in question, we must never underestimate the importance of trading in the same direction as the rest of the market players.

In the intermediate time frame, the SPX is showing a lower high, but not yet a lower low. Therefore we have a Neutral/Bearish posture for that most important judgement. The short term, in contrast, shows higher highs and higher lows for a bullish trend. (see grid below for time frame definitions)
If the 1410 level doesn’t hold as support, I don’t see much stopping it from going quickly to 1380 in the near term. And if it makes it to 1380…..not good. That’s the last holdout before an official lower low on the intermediate term picture. Or maybe it’s fantastic for put buyers and short sellers, depending on how you look at it.
(Click on images to see them grow. It works the same way our accounts should when we click on the buy and sell buttons.)

I have added to the regular grid another 0ne to define the short, intermediate and long term trends based on higher highs and higher lows or lower highs and lower lows. With that, we can try to be as objective as possible. But our focus as active investors/traders is on the intermediate time frame. I have also taken Lauren’s suggestion to keep a running record of what our posture was each time we do it, but I don’t have anything saved from before last meeting.

Because the other two indicators, the Volatility index and the Investools Market Forecaster, were also judged bearish, we assumed an overall posture of bearish. But keep in mind that the Index itself is always the primary consideration. We look to the other two factors to confirm and support what we’re seeing in the price action on the Index.

We judged the VIX bearish because it bounced off of the 12.50 area, the prior ceiling for the VIX and seemingly the new floor. The VIX may be range-bound now between 12.50 and the 20 area. But whether range bound or going higher, it is currently headed upward in that range and with more room to go to potential resistance than distance back down to new support at the 12.50 area. Because this is a contrary indicator, as this goes up, we call it bearish.

On the Market Forecaster, the green intermediate line has turned downward and put in a lower high. When it crosses the 50 line, that will give more weight to the bearish case. The much longer term market sentiment line in gold is also headed downward with plenty of room to go. Again, though the shorter term lines are low and show potential for a bounce, the emphasis is on the intermediate term which is now in sync with the longer term indicator. Notice also that the market rallied back up above the 50 MA, but quickly fell back below it.

In other news, we’ve slashed a lot of stocks from our list. The reasons why certain stocks were cut were: F/E score below 3.25, Estimates score markedly lower than the Financials score, trading volume too low, very poor performance relative to the industry group, overvaluation, sales and earnings growth and growth estimates lower than we’d like. We want trailing sales growth and earning growth of 25% or better and an estimated earnings growth for the coming 5 years to be 20% or better.

Here is what we have left on the list for the time being. Judging from the fundamentals alone, these are some beautiful looking stocks.

In the coming weeks, I’ll put up some ideas to add to these and we’ll settle upon a new list to watch for when the market does regain a bullish posture. Until then, be careful out there and consider looking for some bearish ideas to balance out whatever bullish positions you may be in still. Now is a time for stop orders to be in place.

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2 Comments leave one →
  1. Paul B. Taubman, II permalink
    April 1, 2007 12:49 am

    Thanks for the great recap! I was unable to make the meeting, but I feel like I was there after your recap 🙂

    Again, thanks! Great job as usual!

    Paul T.

  2. Matthew Curran permalink
    April 1, 2007 4:47 pm

    Hey Paul,
    Thanks for the nice comment here. It’s nice to know my efforts are appreciated.
    All the best,
    Matt

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