Current
Signal Performance as of
Signal
Type |
Trade
Date |
Return
since issued |
|
|
|
World |
U.S. |
|
Nasdaq
100
(QQQQ)
|
Russell
2000
(IWM)
|
S&P
500
(SPY)
|
|
After remaining almost unchanged last week, stocks were able to resume their march forward over the five-day span. The main indexes started the month on a positive note Monday as they all posted gains around 2%. Stocks were buoyed by strong earnings reports from European banks and a euro zone PMI index showing that the region's economic climate is improving. After the major averages largely held onto their gains Tuesday despite disappointing readings on June personal spending and home sales, they resumed their climb during the next session following a stellar earnings report from Priceline.com and an ADP employment report showing that more private jobs were created last month than expected. Wednesday's positive action resulted in a 0.9% gain for the Nasdaq Composite. News that weekly jobless claims came in higher than anticipated caused an initial retreat for stocks the next day, but the main indexes were able to quickly regain their footing to finish the session with minimal losses, as the S&P 500 only slipped 0.1%. the Labor Department released the eagerly-awaited July employment report on Friday. The numbers proved disappointing, as the U.S. economy lost 131,000 jobs last month vs the 65,000 decline that economists had forecast, while job creation by the private sector rose less than expected. For its part, the unemployment rate remained steady at 9.5%. If the news resulted in a morning drop of 1.7% for the S&P 500, stocks were able to recoup most of their losses by day's end as the large-cap index finished the session only 0.4% in the red.
The Nasdaq 100 (QQQQ), S&P 500 (SPY) and Russell 2000 (IWM) respectively gained 2.07%, 1.92% and 0.18% over the five-day span. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).
For its part, our World portfolio posted a
2.27% gain this
week. The portfolio consists of the 5 top-ranked world ETFs
as of July 16, which marked the beginning of the current 4-week
holding period.
Our current Buy
signal remains in effect.
Back to the basics: Trend lines
Anyone looking at a graph of the stock market, or even individual
securities, can readily see that they do not bounce around in
random fashion but display clear organization and patterns.
Stock market prices move in trends. These trends can be up,
down, or sideways (which we sometimes refer to as trendless),
and they can be of short or long duration. As long term Trend
Timers know, profits are made by exploiting major trends, be
they up or down, by riding them for all they are worth, until
they reverse. The investor's challenge is to recognize the significant
trends at the earliest possible without getting tripped by the
innumerable false alarms along the way. Technical analysis has
traditionally placed a lot of importance on charting and the
recognition of key formations and patterns. As arguably the
most basic charting technique, trend lines are widely used and
valued because they are so effective and reliable at graphically
representing trends and spotting trend reversals.
For once the tools are cheap, since all it takes is a piece
of paper, pencil and a ruler. As we have discussed many times,
up trends are characterized by higher highs and higher lows.
It so happens that quite frequently the higher lows follow a
straight line. The tops are less even. For down trends the reverse
is true, with lower lows and the tops of intermediate rallies
frequently lining up in an orderly manner along a downward slanted
straight edge.
Drawing trend lines is a successive approximation process. From
what you suspect is an intermediate low all you need is a second
close at a higher price to draw your first minor up trend line.
Such short term trend lines are often too steep to last and
generally get broken rapidly by a pullback, thus terminating
that trend line. If such a pullback stops at a price higher
than your starting point and is followed by a renewed rise,
it forms a new higher intermediate low which lets you draw a
new lower slope trend line which intersects those two intermediate
lows. And so on and so forth. Minor trend lines are of little
importance for either trading or investing. Traders attempt
to exploit intermediate trend lines while we concern ourselves
primarily with the major ones of longer duration.
The reason trend lines are so widely used is that they serve
as support (or resistance for down trend lines), and when they
are penetrated it most often signifies the end of that trend.
As always in investing, nothing is perfect and there is not
a 100% certainty with trend lines either. Many get broken early
and penetrations are not always meaningful. However, in most
instances, when an important trend line is decisively broken,
it is easy to recognize and represents a high probability indication
of a significant trend reversal. There are various tests used
to determine how technically significant a trend line is, such
as the number of bottoms that have touched or come near the
line without decisively breaking it (the greater the number
the higher the importance of a trend line). The length of the
line is also critical and the longer it has held, the greater
its significance. Conversely, there are also tests to determine
the validity of a penetration such as the extent of the breach
(we want to see at least 2% to 3%), and the volume of trading
when the break occurs (we look for an intensification of trading).
There are many types of special trend lines successfully used
by market technicians, such as trend channels, necklines, rectangles,
triangles and wedges, but today we focus on the simple major
trend line.
Chart 1: The recent down trend
Looking at the six month chart of the S&P 500 index
above, one can see that since the top reached in April a clear
down trend has been in place. At first, the down trend was pretty
abrupt, and one would have been tempted to trust the dotted
line on the chart as the major trendline. But like everything
in technical analysis, this is never a perfect science and the
market always has its own way. The breakout that occured in
June was clearly a false one, giving us another intermediate
top to draw a more realistic down trend (the solid blue line
on the chart). In late July, that down trend was broken again,
corroborating our latest Buy
signal. This time, the trend reversal was later reinforced by
the crossover of the 10-day exponential moving average (EMA)
crossing above the 50-day EMA, giving even more credit to the
new up trend.
Trend lines play no direct part in our Model, but over the years
we have always gained in being aware of them. In times of doubt
and confusion their simplicity and clarity often provides insight
and reinforcement that no amount of words can match.
Question:
As a Registered Investment Advisor (RIA), can I use the
TimingCube
signal for my clients?
If you are an RIA, broker/dealer or institutional investor,
a professional subscription is required to use the TimingCube
system and signal to direct the investment of your clients'
assets. The benefits range from offloading the day-to-day research
and money management to a proven and successful approach, to
a continuing record of long-term market-beating performance.
Our professional and institutional services are available through
our sister company MARKETTREND
Advisors, and they extend from simple licensing of the signal
and strategy counseling, to full money management.
To
find MARKETTREND
Advisors' contact information, please refer to our "Managed
Accounts" page.
Warm wishes and until next week.
The TimingCube
Staff
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