Market Timing Pro

S&P 500 (SPX) & Nasdaq 100 (NDX) Timing

S&P 500 Index (SPX) Chart Analysis Last week we wrote: "...On Tuesday of this week the Federal Reserve announced a cut in the Fed Funds, as well as the Discount Rate, of 1/2%. They also stated they were ready to cut rates further as needed. The resulting rally was so strong that by the close of trading, the up volume vs. down volume was 30 to 1." This week: While this week traded mostly sideways, with the S&P 500 Index - SPX closing only a slight fraction higher, it was an acceptable week considering the huge Fed inspired rally of the previous week. Such news event inspired rallies usually are followed by at least some profit taking, so a week of sideways trading is much better than a week of selling. That said, the SPX is still lagging the Nasdaq, which ended the week with solid gains. The Nasdaq has also broken out to new rally highs, while the SPX remains about 2% below new highs. Based on the Nasdaq's breakout and the S&P's strength, we are watching for a breakout here also. In fact it is very much needed to keep this rally going, as a failure here would be quite bearish. We note that the CBOE Volatility Index - VIX is indicating that some selling may be ahead for the SPX, but it does not have to be a major setback as long as it does not become severe nor extended. Before long, the SPX needs to punch through those prior highs. The chart shows the SPX closed above both the 1516.25 resistance level (last) Tuesday (see below chart). Friday's close remained above the upper resistance level and continues to forecast a run for the highs at SPX 1553.08. The chart also shows that we have the prior highs as a Wave 5 top. Typically that is the final high of a long-term advance. Obviously, this would have to be in error if we trade above SPX 1553.08 as we expect and a move above the old highs would forecast higher highs and a different Wave forecast. Once the SPX breaks out, we will review the larger Wave picture and make changes according to the new data. Also, when we close above the prior highs we will begin posting new targets for this advance. Hopefully we will be posting these as soon as next week's reports. The SPX portion of this strategy is BULLISH and in the Rydex Nova Fund - RYNVX (or other bullish S&P index fund) S&P 500 Index (SPX) Daily Chart Nasdaq 100 Index (NDX) Chart Analysis Last week we wrote: "...The Nasdaq, and Nasdaq 100 Index - NDX that we track here, showed excellent strength on strong volume this week as the NDX closed above the 2005.80 resistance level and within a very small fraction of new rally highs." This week: The Nasdaq, and Nasdaq 100 Index - NDX that we track here, pushed well above their prior rally highs and closed with a substantial gain, unlike the S&P 500 Index and the small cap indexes which both ended the week mostly unchanged. The below chart posts new targets for this advance. The first, at NDX 2129.55 is close enough to be reached over the next several days. Watch for a decisive close above this level. If we get it, it will forecast a run to NDX 2217.65 and that would be quite a rally. Note that strength in the Nasdaq is bullish for the entire stock market. We have discussed this many times here. We always look for the Nasdaq and especially the NDX to lead the market higher. The current strength is a good sign. That said, the weakness in small caps makes little sense considering small caps typically are even stronger than the Nasdaq. There are always questions during any rally I suppose and this remains one of them. As long as small caps are weak, just stay with the NDX index funds and stocks. We go into this further in the Small Cap Timer Report. The NDX portion of this strategy is BULLISH and in the Rydex OTC Fund - RYOCX (or other bullish OTC index fund). Nasdaq 100 Index (NDX) Daily Chart

Don't Make It Personal

Veteran, successful market timers and traders stay detached. They know that the markets are impersonal and they trade they strategies methodically. But novice market timers often have trouble achieving this rational mind set.

Stay Detached From Trading Decisions

For example, novice timers (and traders) may take market timing losses and subsequent drawdowns personally. Seeing it as a hit to their ego, and attaching personal significance to what is just an everyday fact of all timing and trading decisions.

Small losses should be expected, and it's vital that you don't take them personally. What is important is keeping them small. Never allowing any loss to grow into a big one. That is accomplished by following a timing strategy that is designed to protect capital.

Disappointment Is Natural

It is natural for a person to feel disappointed after experiencing a drawdown. Financially, real money has been lost.

"...we spend a lifetime building up an array of emotional responses to help us cope with uncomfortable feelings, those same, quite normal emotional responses are exactly the opposite of what is needed to succeed in market timing."

It's perfectly reasonable to feel a little disappointed, but it isn't useful to take it personally. Disappointment is a natural emotion, but not very helpful in market timing.

In fact, if you take it personally, you might then try to gain back that small loss, by exiting your strategy and taking an ego inspired trade. The odds are good that you will be the poorer for it.

Market Timing Requires Doing The Unnatural

Although we spend a lifetime building up an array of emotional responses to help us cope with uncomfortable feelings, those same, quite normal emotional responses are exactly the opposite of what is needed to succeed in market timing.

Timing requires that you do the unnatural, and control your emotions. A lifetime of learning how to respond to uncomfortable feelings or situations MUST by unlearned to succeed in market timing (or any trading for that matter). Responses that are correct in personal and even business situations, are sure to cause losses in trading the financial markets.

You expect to make a profit over time, but in the short term, even a winning timing strategy is bound to have losers. That's just the nature of probability theory.

So why make it personal? Why put your ego on the line with each trade?

Why brag when you are lucky enough to have the odds work in your favor and then be depressed when the odds go against you? Both emotional responses are normal, yet they are dangerous to successful market timing.

But how do you control perfectly natural emotional responses?

"Unlearning" A Lifetime Of Lessons

When it comes to market timing, you've got to UNLEARN responses that you've spent your whole life learning.

Market timing isn't about you. It is just a strategy that works over time.

In other fields, probability plays little if any role. You put in effort, make sure you meet the expectations of the people who pay you, and you're a success.

In the traditional workplace, it makes sense to put a little ego and pride into your work. Your effort and talent often have a direct payoff.

But with market timing, the odds can go against you, no matter how much work you put in. The perfect trade can go wrong.

"If you are a seasoned market timer who really has mastered his or her emotions, you are assured that the odds will, over time, work in your favor."

That's hard to accept for most people because it means that being a successful (profitable) market timer or trader, to some extent, is just a matter of the odds randomly working in your favor. But there is good logic behind this randomness. And a successful timing or trading strategy uses this logic to profit.

A successful timing strategy will exit losses quickly. It will not stay with a bullish or bearish position to sooth the ego of the strategy's designer. It will also stay with a successful trade and not exit quickly to lock in a profit. That may feel good for a day, but if the profitable trend lasts two, three, five times longer, you have lost out on a huge profit.

Recognizing that odds are part of trading takes some of the glory out of it. But on the other hand, understanding odds helps you cope with inevitable drawdowns.

Conclusion

If you are a seasoned market timer who really has mastered his or her emotions, you are assured that the odds will, over time, work in your favor.

You will enjoy your times of glory as the gains add up. You will hunker down and quietly follow the signals during unprofitable sideways markets or during failed trends.

Taking a detached, unemotional approach may take some of the glory out of market timing, but on the other hand, that same unemotional approach is the KEY to market timing success.

Most importantly, the unemotional market timer will implement the timing strategy. He or she will make each trade consistently, with the certainty that over time the odds will make him or her a successful timer.

At FibTimer we offer strategies with years of success behind them. But all of them, at one time or another, have had losing trades. Staying with the chosen strategy eventually paid off. Timing strategies are designed to make their profits over time, not in a few weeks or even months, though it is always nice when that occurs

Remaining unemotional, so that a timing strategy is adhered to not only in easy (profitable) trading conditions, but also during the tough (unprofitable) ones, leads to success in a field where the majority fail.

Where To Next For The Powershares Nasdaq 100 (NASDAQ: QQQQ)?

September 27, 2007

Shares of the exchange trade fund Powershares Nasdaq 100 (NASDAQ: QQQQ) are at new rally and new 2007 highs after breaking out early this week.

The Q's may have considerable room to move higher based on Fib resistance levels. The first target is $52.36, about 2% above Wednesday’s close. A decisive close above this level would forecast a run all the way up to $54.53 in coming days and weeks, equaling a 6% rise.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy holds a position in the Q's.

Breakout For Shares Of Motorola (NYSE: MOT)

September 26, 2007

Shares of Motorola Inc (NYSE: MOT)) have broken out of a yearlong correction and may be headed for a considerable advance.

Motorola has seen share prices decline since October 2006, losing some 26% in the process. The current month long rally has broken out from a long-term basing pattern and should carry Motorola to at least $20.97 over coming weeks.

Motorola is likely to meet strong resistance at that $20.97, but could run considerably higher if it is surpassed.

The Fibtimer.com (http://www.fibtimer.com) Stock Timing Strategy holds a position in Motorola .

iShares MSCI Emerging Markets ETF (NYSE: EEM) At New Highs

September 24, 2007

Shares of the exchange-traded fund MSCI Emerging Markets (NYSE: EEM) are trading at new highs. Where to next?

MSCI Emerging Markets has outperformed the rest of the stock market in the two-month recovery since the August correction lows. In fact, they are at new highs and on Monday, when the U.S. markets closed lower, MSCI Emerging Markets gained over 1% in heavy volume.

This bodes well for this widely traded ETF and we are looking at a target of at least $153.00 in coming days. A decisive close above this level could take MSCI Emerging Markets all the way to $164.30.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy holds a position in MSCI Emerging Markets .

Market Timing, Do You Have What It Takes?

Market timing works, and it works well for people who actually practice it as a discipline. In theory, every investor is capable of following the disciplines of timing. But not everybody has the right emotional makeup to do timing right. In real life, many people who try are ultimately unsuccessful.

Timing puts investors on the front lines, face to face with the realities of the market, every business day. To be a successful timer, you have to buy and sell without flinching even when you don’t feel like it. You have to follow your discipline even when you’re sure it’s a mistake.

You’ve got to do it even when you don’t understand why your timing system is telling you to act.

Perseverance

Timing can get you in real trouble if you try it for awhile, become discouraged and then abandon your plan in favor of something you find more palatable.

If you let your feelings guide you, you’re likely to bail out of a timing strategy at the very worst time, when your investments are down.

Can you adopt a strategy and stick to it for the long term? Can you follow the system regardless of how you feel about it and regardless of what’s going on around you? Can you resist the temptations to act on impulse? Can you ignore the many "hot tips" you may come upon every week?

Accepting Imperfection

Imperfection is one of the media’s biggest criticisms of timing. When you are underperforming and experiencing losing trades, that media criticism may shake your confidence.

The media often says market timing requires you to be right twice: when you buy and when you sell, in contrast to a buy-and-hold approach in which you have to be right only once: when you buy.

"Your goal should not be to achieve perfection. It should be to put the probabilities on your side. And a good timing strategy will do that."

Most of the time, you can count on your system to get you into or out of the market "too soon" or "too late" to catch the tops and bottoms.

If getting out at the very top and getting back in at the very bottom are your goals, timing is guaranteed to let you down. And if that failure will drive you nuts, think twice before embarking on a timing strategy, because what you will perceive as timing mistakes will erode or destroy your willingness to follow the discipline.

Your goal should not be to achieve perfection. It should be to put the probabilities on your side. And a good timing strategy will do that.

Ignoring The Media

Almost unanimously, the press seems to have a blind spot when it comes to timing.

They say timers are misguided, and this view is widely echoed by the mutual fund and brokerage industries.

Can you pull out of the market when everybody else is either getting in or already making money? Can you get back in when your friends, colleagues, the media and possibly your own gut are telling you it’s a dumb idea?

Making Decisions

Some people stew and fret and delay making decisions, even when they are convinced they should do something. They are unlikely to be successful timers.

Successful timing requires quick action to move into and out of markets. One of the most obvious truths about timing (and one of the most widely overlooked) is that by the time your friends, your colleagues, your gut and the experts all agree on what you should do, it’s already far too late for you to extract the maximum opportunity from it.

Conclusion

Market timing works, and those who are able to stick to long term successful market timing strategies reduce their risks in the markets, and enhance their returns.

We know this as a fact after more than 20 years timing the markets. Although there are times when even the very best timing strategies are not profitable, we must remember that timing is not about winning on every trade.

Timing is about winning over the long haul. About reducing risk and protecting capital during dangerous market conditions. About winning over the years.

Utilities HOLDRS (AMEX: UTH) Gaps Above Resistance

September 20, 2007

The exchange-traded fund Utilities HOLDRS (AMEX: UTH) gapped higher at the open Wednesday, September 19, and broke out above a critical resistance level.

Utilities HOLDRS was slow to recover from the June to August market correction and in fact continued lower several weeks after the rest of the market had bottomed and rebounded.

But on Tuesday of this week, Utilities HOLDRS closed above the 50% retracement and on Wednesday Utilities HOLDRS closed above the critical Fib 61.8% retracement resistance level. The expectation now is for a continued advance to test the prior 2007 highs at the $151.00 to $152 level.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy holds a position in Utilities HOLDRS .

Breakout For Biotech HOLDRS (AMEX: BBH)

September 19, 2007

The exchange-traded fund Biotech HOLDRS (AMEX: BBH) broke out above resistance on Tuesday. Is it time to buy?

Biotechnology stocks have been lagging the rest of the stock market since January 2007. During that time there have been several breakouts and all have failed to launch new long-term trends. But no one knows ahead of time which breakout will be the one that continues higher.

The trick is to trade them, and follow strict money management rules protecting capital if the breakout fails. Tuesday’s breakout above $174.55, that was also above its previous short-term highs of last week, should take it to at least $178.44. At this point BBH will be up against key resistance. A close above $178.44 should propel this widely traded ETF to the $190.00 level.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy holds a position in Biotech HOLDRS .

have The Markets Changed Part 2

Last week we began to answer the question asked us by many of our subscribers, "have the markets changed?"

Our answer... was no.

To read last week's "Part I " click here .

The markets have been unchanged for hundreds of years, and there is no reason to believe they will not continue unchanged.

Prices must either go up, down or sideways. One of these three outcomes will occur. Change is inevitable and has been the one thing that can be counted on in the markets throughout history.

No advances in technology, no leaps of modern science, no radical shifts in how we see the markets will ever alter this fact.

Thus a market timer does not need to predict the future, or even attempt to predict it. A timer only needs to know the rules of the game and abide by them. If the market goes up, be long. If the market goes down, be short or in cash.

Strategy Based On Change

Trend following, the basis of our timing strategies here at FibTimer, cannot fail over any fair time frame. Why? Because trend following uses the one thing guaranteed to occur in the markets to make its trading decisions... Change.

"A profitable trend following strategy lets winning positions (trends) continue, while quickly exiting positions that go against you."

Trend followers are always poised to jump on board the next unexpected major move in the markets, and to profit from it.

A great trend following system adapts to and uses change. The future is its most important ally.

A good trend following strategy lets profitable positions continue, while quickly exiting positions that go against you.

Systematic Trading

However there is one way a trend following strategy can fail.

A strategy that is exited during unprofitable times, will not work over time, because you cannot know when the next profitable market move will begin.

Starting a timing strategy based on a solid track record of previous profitable results, such as those at Fibtimer, is fine. But if you cannot stick to the plan, the results we achieve over the years will not be the results achieved by you.

A timing strategy that is not applied systematically, with discipline, in both good and bad times, is not a strategy.

Our trend following trading strategies are based on the only constant the financial markets offer us. They are based on change. We make our profits when the markets change.

When the markets are tough, you need only to execute the timing strategy. Having the strategy gives us the ability to avoid making difficult decisions under pressure when we are most likely to make mistakes.

By trading trends we never miss a major trend. We only need to have faith in the system, and trade it. When the inevitable next big move occurs, we are thus guaranteed to be profiting from it.

Conclusion

Change is inevitable, and is the only market forecast we can count on. Trading trends always profits from the big moves we know are in the future.

But trading trends requires that we make the trades, in good times and bad. We will never know ahead of time which buy or sell signal is the one that makes the big profits.

Lastly, a trend following timing strategy seldom enters or exits at the most favorable price in a market trend.

Instead, a strategy based on change seeks to close out losing positions quickly to preserve capital, and to hold profitable positions for as long as the market trend continues to exist.

The change and volatility implicit in the markets work to your advantage. You won't make money without them.

Don't get caught up in the whys of the market.

Markets stay the same because they will always change. But as a trend follower, you don't care, and you always know how to react to change.

What Happened To Small Caps?

September 14, 2007

After a yearlong rally during which small caps lagged terribly while the major big cap indexes such as the Dow Industrials (DJIA) and S&P 500 Index (SPX) reached all-time highs, small caps are still under performing during the recovery from the July-August correction.

Using the ISHARES Russell 2000 ETF (NYSE: IWM) to measure performance, the small caps remain mired near their correction lows and during Thursday’s triple digit Dow rally, IWM managed to close with only a fractional gain.

Where to next? Traders should stay away from small caps until they show strength relative to the rest of the stock market. From the look of current charts, that time may be well in the future.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy currently has a position in IWM.