Market Timing Pro

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

S&P 500 Index (SPX) Chart Analysis
Last week we wrote:

"...The S&P 500 Index - SPX suffered through a week of profit-taking that at times included bouts of extreme selling. Back-to-back 200 point Dow losses on Tuesday and Wednesday added to the unease."

This week:

Though this week was strong one for the stock market, the strength was not equally divided. The S&P 500 Index - SPX had gains but those gains lagged the Nasdaq indexes considerably.

With only a single week of disparity, there is not much that can be inferred from this. Just that the SPX did not perform as well and may make up the distance next week or in coming weeks.

But one thing is certain. the Nasdaq indexes are and have been outperforming the rest of the stock market for the last two months. Tech stocks are back in vogue and this bodes well for a continuation of this advance. Typically the Nasdaq leads the way in advances that last for a substantial time.

The SPX has not made it back to its 200-day moving average much less crossed above it. It was the 200-day moving average that started the selling two weeks ago so this is the target for the advance. The SPX needs to reach, and close above, this closely watched average, currently at about SPX 1420.

Initial resistance remains at the 50% retracement level at SPX 1416. If this level and the 200-day moving average are surpassed, the new target will be SPX 1454 which is critical resistance for the advance.

There was good news on the oil front as crude backed down from its highs. Oil has been in bubble mode for months now and some retracement is past due. Of course there is no way to know when the bubble will burst, nor how far down oil prices can drop when it bursts. But still, when it happens, look for higher stock market prices as a result.

The CBOE Volatility Index - VIX has moved to lows that indicate we may see a new lower base forming in this index. Potentially in the 12-13 level. If this happens the stock market will be considerably higher as a result.

The 50-day moving average continues to rise while the 200-day moving average is again the target for this advance.

Conclusion:

The stock market was hit by a round of profit-taking last week, but it occurred at expected resistance levels. When selling occurs right where you expect it to, the advance is likely just enduring one of many corrections it will face along the way.

This week the SPX regained half of the prior week's losses, but the Nasdaq indexes regained all of its losses. Strength remains with the tech stocks, as it has for the last two months.

The charts are still bullish for all the major indexes.

For subscribers who overly worry about short term swings in the financial markets, remember that you do not have to be an aggressive timer to be a profitable timer. Money is made in both aggressive and conservative style trading. Our Conservative S&P Timer strategy trades only the long term trends but that means it profits without the numerous buy and sell signals that active and aggressive traders take.

The SPX portion of this strategy is in a BULLISH position. We are in the Rydex Nova Fund - RYNVX (or other bullish S&P 500 index fund) for both active & aggressive traders.

S&P 500 Index (SPX) Daily Chart

Nasdaq 100 Index (NDX) Chart Analysis

Last week we wrote:

"...Until this week, the Nasdaq 100 Index - NDX had advanced almost non-stop for five weeks. That pace could not be sustained and the selling this week was the result. In fact, had the rally continued another couple of weeks, the selling would have been worse."

This week:

All of the Nasdaq indexes had powerful rallies this week. The Nasdaq 100 Index - NDX is now at new closing rally highs, and even the small caps rallied and reached new highs this week.

The NDX is one of the strongest indexes in this advance. Unlike the SPX which failed at the 200-day moving average, the NDX has been above this level for two weeks and stopped right at its 200-day average during the correction last week.

When support holds it is bullish. That support for the 200-day moving average was also right at the 50% retracement support for the NDX (see below chart).

Nasdaq volume also rose along with prices. After a week of strong selling, it is bullish when volume surges along with prices, especially so soon after the selling.

Importantly, the NDX not only reached the Fib 61.8% retracement level this week, but also closed above it. This forecasts higher highs for the NDX in coming weeks, and potentially a run for the Wave B highs at NDX 2140 over the next several weeks.

The NDX remains substantially above its support levels that are down at NDX 1853 to NDX 1810.

The NDX portion of this strategy is in a BULLISH position. We are in the Rydex Nasdaq 100 Fund - RYOCX (or other bullish Nasdaq 100 index fund) for both active & aggressive traders.

Nasdaq 100 Index (NDX) Daily Chart

Focus On The War, Not The Battle

Why do most traders lose most of the time?

Why is it so many investors will stay with a position as it loses, hoping it will bounce back, instead of cutting their losses? And why do those same investors, when they have a winning position, take quick profits instead of letting the trend play out?

It is all about emotions. Not wanting to lose. Wanting to feel good about a profitable position. But unable to make consistent profits.

It's Not The Trade, It's The Battle

Too many market timers believe their last trade is a reflection of just how good a timer they are (or how good their timing service is).

This boils down to one word - expectation.

If you expect to win all the time, or even the large majority of the time, you're setting yourself up for a lot of heartache.

And the sad fact is, if you believe market timing is about winning all the time, you are also setting yourself up to be one of those many thousands of losing investors.

To win as a market timer, you must focus on the war - not the battle.

The fact of the matter is, this isto a large degree a game of odds, and should be played over a long period of time. Those market timers who recognize this fact, and do not pull out during a losing position will be the winners in the end.

Market timing is about beating the markets, and all those "other" thousands of losing investors, over time. It is about following a timing strategy through thick and thin, and profiting over time.

We write about this frequently because we are just as human as our subscribers. We know the emotions. We know the pressures. If we can make all of our subscribers recognize that sticking to the strategy over time is the key to success, we will have accomplished a great deal.

The FibTimer historical trade pages (available by link from all subscriber reports) show the excellent profits we have made over the years. They also show small losing trades. It is to be expected in market timing and in fact in all trading. Be prepared for them so that they are not unexpected, and over time you will be successful.

The "Worry" Factor

All humans worry. If we didn't worry, we might take dangerous risks, and pay a steep price.

Worrying is normal in our lives, and has an important function.

However, worrying becomes a problem when you do it too often and for no good reason. For example, if your last timing trade was a loss, and you worry about it, you tend to think the same thoughts over and over again. It doesn't help much and you are likely to let it interfere with your ability to execute the next timing signal.

Excessive worrying "can" be a problem for successful market timing.

If you are the kind of person who worries all the time, it may interfere with your ability to pay attention to executing your market timing strategy.

The solution? Think "long term." Remember, it is the "war" you are trying to win, not the current battle.

The Difference Between Winning Timers And Losing Timers?

LOSING market timers have unrealistic expectations about the kind of profits they can make, typically shooting too high.

Losing market timers also debate with themselves before executing buy and sell decisions, and even dwell on a position long after it's closed out.

Losing market timers pay little attention to money management, tending to enter and exit trades emotionally.

And critically, losing market timers have no clear plan how, or when, to exit.

WINNING market timers follow a strategy that uses strict money and risk management rules which keep them in a winning position as long as possible, and protect them against large losses.

Winning market timers obey their chosen timing strategy faithfully, knowing it will not be profitable all the time, but that over time it will beat the market, and it will never allow them to lose substantial capital in a bear market.

Winning timers take action instead of suffering "analysis paralysis."

Winning market timers never allow emotions to take over, or have any part in, their timing decisions.

Hopefully this second description fits you better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier

Why Do We Focus On Emotions?

We have been asked many times why we focus so much on emotions in our weekly commentaries.

Allowing emotions to affect trading decisions is the number one reason why most investors lose money in the financial markets. Allowing emotions to affect timing decisions is also the number one reason why market timers fail.

When emotions enter the picture, timers jump the gun on buy and sell signals. They exit positions before the strategy tells them to. Emotions cause them to abandon a perfectly good timing strategy and, almost always, it happens at a time when they wind up losing money.

Why? Emotions run highest when you are in a losing position. But losing positions are an absolute certainty! So be prepared for them, or be prepared to make bad decisions, and lose capital.

Giving in to emotions, makes you one of the vast herd of followers, trying to out-think everyone else, but in reality you are just moving with the herd. And the herd always loses in the end.

To be successful at market timing, and in fact to be successful at any trading, you must follow a strategy that "removes" emotion from the equation.

This means your trading plan "must" be totally removed from any discretionary input.

If you can change the trade, you will!

And if you change the trades, eventually you will lose.

Choose strategies that match your emotional trading style, whether aggressive or conservative (and hopefully a diversified mix of both) and stay with them.

The market timer who stays the course, winds up with the gains we post on the website on our trade history pages.

Bond Bear Ahead?

May 30, 2008

While the stock market rallies, the bond market is taking a tumble. As measured by the ETF Ishares Lehman 20 Year (NYSE: TLT), bonds may be headed lower still.

TLT had a double top in January and March of this year. Looking back to November of 2007, it may also be a bearish head and shoulders pattern.

TLT has now broken below the 50% retracement support, at $90.05, for the entire year long rally in bonds. This forecasts that prices will reach at least the Fib 61.8% retracement level at $88.20.

Then comes the critical test. If $88.20 fails, expect prices to continue lower and likely test the June 2007 lows.

Note that the Fib 61.8% could also result in a reversal. It is key support, but if it fails, watch out below.

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

Can Starbucks Corp (NASDAQ: SBUX) Rally?

May 29, 2008

Shares of Starbucks Corp (NASDAQ: SBUX), having lost some 58% of share value over the past two years, are actually showing strength and with increasing volume as well.

Only two weeks ago we wrote that Starbucks was headed nowhere, fast. But every decline sees an advance eventually…well, at least usually. We also wrote that Starbucks would have to see a 240% rise in share prices just to get back to its 2006 highs.

But there may be some room on the upside for this beleaguered stock if it can close above resistance at about $18.70 a share.

Certainly there is lots of room to move higher, but make sure any buys include a stop. This stock could quickly fall of a cliff on any more bad news.

Fibtimer.com (http://www.fibtimer.com) currently has a position in Starbucks Corp in its Stock Timing Strategy.

Streettracks Gold Shares (NYSE: GLD) Pull Back at Resistance

May 28, 2008

Shares of Streettracks Gold Shares (NYSE: GLD) have been moving higher since hitting correction lows at $83.57 a share on May 1. Two weeks ago we asked “is this a bear rally that will suck in money and then collapse?”

The time to watch this widely traded but extremely volatile ETF is at current levels. Gold Shares reached exactly the 50% retracement of its entire March to May correction, and has so far been unable to surpass it. This resistance level is the first of two that traders are watching. The 50% is at 91.82, and just above is the Fib 61.8% retracement at $93.86 which is critical resistance.

Gold Shares must close above critical resistance at $93.86 to confirm we are in a rally that will test the prior $100 highs. Watch for bearish reversal patterns at current levels to indicate the rally is failing.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy may have a position in Streettracks Gold Shares .

Critical Issues For Market Timers

It is not enough to have a successful market timing strategy if that strategy is not traded with discipline. It is also not enough to trade with discipline if you are overly aggressive with those funds allocated to market timing, and cannot handle the resulting volatility.

Many market timers think that the more they trade, the better they will do. But in reality, market timers do not need to trade aggressively to do well. Four critical issues; strategy, discipline, money management and diversification are discussed below.

When the market has a prolonged down trend, or a bear market that can last months to even years, the more aggressive strategy, using bear funds, will achieve huge gains. But when the bear is not growling, a less aggressive approach usually works much better. If fact, our very Conservative S&P Timer, which only averages about one trade "per year," is doing incredibly well. It has never had a drawdown.

This brings up the subject of diversifying. We go into that below so be sure you read it.

So, much depends on the current market conditions and on a market timer's expectations. Are you looking for gains over a long time frame, during which bear markets are sure to occur, or must you see immediate or constant gains in order to stay with a timing strategy?

Market Timers Must Have An Edge

At FibTimer, our "edge" is trend trading. We know that the financial markets are usually in a trend, either up or down. In fact, history shows us that they are in trends about 80% of the time.

This "knowledge" is our "edge." We know that there are times that the markets are not trending, but that these times do not last long. We keep our losses small during non-trending markets using disciplined risk management. And, by trading every trend that occurs, we know absolutely that we will never miss a trend.

By limiting losses, and allowing profits to ride, we use our "edge" to time the markets with great success. There is an old saying that applies here; "Limit your losses and the profits will take care of themselves."

Disciplined Execution

Once you have an edge, you have to be able to execute. The common trading errors of not taking trades until you see if they are profitable, or jumping the gun and taking trades ahead of time because you "think" a signal will be issued soon, can be a disaster to your profitability.

By not sticking to a plan, you allow emotions to rule your finances, and that places you right in with the majority of investors. Those who are the cause of the market's volatility. The "herd" followers.

At FibTimer, all of our strategies are non-discretionary. Emotions are not allowed. Our strategies offer disciplined execution of non-emotional buy and sell signals.

The reason for following any timing strategy is to "remove" yourself from making emotional trades. To remove yourself from the herd, which is often headed in the "wrong" direction.

If you are concerned that following a disciplined non-discretionary timing strategy can result in small losses at times, just try trading the markets using your instincts. The deadly results of emotional trading are usually evident quickly.

A second reason for following a non-discretionary timing strategy is that is gets you "out" of losing buy and sell signals fast while limiting drawdowns. You are not subject to the psychology of trading. To holding onto a trade in hopes it will come back to profitability. Then exiting, finally, in a panic after huge losses.

The disciplined execution of a timing strategy avoids all of these pitfalls. You just follow the buy and sell signals with the absolute assurance that your losses will be limited and you will never miss a trend. Over any fair time frame, you will beat the markets.

Effective Money Management

Overly aggressive investment allocations can ruin even a good timing strategy with excessive drawdowns, while overly conservative allocations of capital will not optimize your total returns.

If you are a conservative investor who wishes to use market timing to protect against losses in a bear market, do NOT invest 100% of your funds in an aggressive bull and bear strategy that you are not prepared for. Yes, they make a great deal of money over time, but aggressive strategies do have more frequent buy and sell signals, and more frequent small losses.

If as a conservative investor you are unable to handle those losses, you are likely to exit the trade, thus locking the losses in, at just the wrong time!

Stick to strategies that fit your emotions. Market timers should know themselves and use timing strategies that they will be able to stick with over long time frames. Patience is the market timing key to success!

Diversification

Even aggressive market timers should not time 100% of their funds in a single aggressive strategy. Diversification is not just a word., it is a prerequisite to having a successful timing strategy.

At Fibtimer, we rarely invest more than 20-30% of our own funds in bull and bear strategies. The rest is usually diversified in sector funds (Sector Timer).

Using at least some diversification takes the stress out of investing, and makes it much easier to follow buy and sell signals with discipline.

Conclusion

At FibTimer, we never question buy and sell signals and follow them faithfully. Over the years, our disciplined approach has resulted in superb gains. We hope that we can instill this disciplined trading into all of our subscribers.

It does not take blind faith. What it takes is a realization that our own emotions and instincts are usually wrong, and that a non-discretionary timing strategy that trades all trends and limits losses in non-trending periods, is the most successful approach to profiting in the stock market.

Once you realize this, you will relax and allow the strategies to successfully grow your investments as they are designed to do.

Bulls Sucker Punched

March 23, 2008

It is hard to feel bullish after two triple digit Dow losses in a row. The Dow Jones Industrials – DJIA took it on the chin for almost 400 points on Tuesday and Wednesday of this week. The S&P 500 Index – SPX held up much better losing 37 points, or 2.6%.

Is the rally over?

The March lows appeared to put in a solid bottom for stocks, with the SPX gaining 12% from those lows by early this week. Now some 2.6% lower, traders are wondering what is next for the stock market.

Sharp rallies create sharp corrections. The higher the rally goes before profit taking hits, the bigger the profit taking and scarier the selloff.

The SPX’s reversal occurred right at its 200-day moving average, as well as the 50% retracement level for its entire six-month correction preceding this rally. When selling occurs right at strong resistance levels it is not predictive of the end of the advance, but is just expected profit taking at forecasted resistance levels.

Unless the selling reaches and breaks below support at the SPX 1321-1341 levels, the current weakness is nothing more than expected consolidation in a longer term uptrend.

Starbucks Corp (NASDAQ: SBUX) Headed Nowhere Fast

May 22, 2008

Shares of Starbucks Corp (NASDAQ: SBUX) moved up just a bit from five year lows over the past week, but has not displayed any technical strength.

Traders should watch the $15.75 level in coming weeks. If Starbucks closes below that level, expect a fast sell-off to at least $13.85 a share. This is the Fib 78.6% support level in a severe decline that has already taken a 58% bite out of share prices.

Starbucks would have to see a 240% rise in share prices just to get back to its 2006 highs. That is not going to happen anytime soon.

Fibtimer.com (http://www.fibtimer.com) currently has a position in Starbucks Corp in its Stock Timing Strategy.

Streettracks Gold Shares (NYSE: GLD) in Rally Mode

May 21, 2008

Shares of Streettracks Gold Shares (NYSE: GLD) have been moving higher since hitting correction lows at $83.57 a share on May 1. Is this a new bullish advance with legs? Or is this a bear rally that will suck in money and then collapse?

The bullish case is easily sees in the chart. Gold Shares reached almost a 50% retracement before rebounding. This is at about the right level for a legitimate reversal. Gold Shares also has declined in a three wave pattern, which is typical of corrections to a major trend.

What can stop the advance? Gold Shares is approaching the 50% retracement at $91.82 for the entire correction. Typically this level provides strong resistance and it must be surpassed. After this is the critical Fib 61.8% retracement level at $93.86. Watch these levels for a reversal to the downside.

A close above $93.86 would result in a run for the prior highs at $100 a share.

The Fibtimer.com (http://www.fibtimer.com) ETF Timing Strategy may have a position in Streettracks Gold Shares.

Big Rally for Vulcan Materials (NYSE: VMC)

May 20, 2008

Shares of Vulcan Materials Inc (NYSE: VMC) jumped higher on Monday, May 19, after rising above short term resistance late last week.

Vulcan Materials has been testing lows at $60 a share since January of this year, and finally has begun a recovery in share prices after losing 50% of their value since June 2008.

Vulcan Materials will likely reach the initial target for this advance, at $92.98 a share, in short order. A close above that level would forecast a run to at least $100.72 a share, which is the Fib 61.8% retracement of the entire year long decline.

The Fibtimer.com (http://www.fibtimer.com) Stock Timing Strategy has a position in Vulcan Materials.