Sentinels Flip to a Sell

An initial gap down of the major averages was never seriously challenged by the bulls today as the broader market ended the week with significant losses.

There was chatter that China might raise interest rates as the specter of inflation stoked fears that higher rates could hurt growth. Such speculation dropped the Shanghai Composite Index 5.2%. The eurozone sovereign debt crisis was also a continuing concern.

The dollar managed to break it's 5 day rally, but it's 0.2% gain was not particularly noteworthy.

I had been reluctant to view the market from more than a neutral stance in spite of several indicators suggesting a minimum of short term weakness, but today the Seven Sentinels flipped to a sell, which normally means Intermediate Term weakness is upon us.

Here's today's charts:



NAMO and NYMO are now firmly in negative territory.



NAHL and NYHL had been suggesting weakness for the past few trading days as internals just didn't look that good. That was a correct read.



TRIN and TRINQ are now both on sells.



BPCOMPQ finally poked through that upper bollinger band trigging a sell signal.

So all 7 signals are now flashing sells, which flips the system to a sell. And with our Sentiment Survey also on a sell for next week, I'm not expecting to get invested again anytime soon. I have 15% still allocated to the bond fund that I'd like to move to the G fund, but that would be my last IFT for the month, and it's too early to be without an IFT.

I'm interested in seeing how many of us were "buying the dip" this week. I'll be posting that Tracker chart later this weekend. See you then.

 

[Birchtree]

A big jump on Monday would be perfect to catch all the systems on the wrong side of the tracks - hedge funds will load up and the bond people will start selling and puking as rates begin to rise. Ah, it's just another week in the revolution.

 

[Guest]

OR a big Monday could be convincing enough that the Buy and Holders stay in stocks for another week of losses while others bail.

 

[vegasmith]

that was me above... guess I wasn't logged in

 

[FireWeatherMet]

Cool,
I was one that jumped in on the dip Friday morning.

Reasons were:

1) Stocks were down 3 of 4 days (actually 4 of 5 if including the close of when I got in). Hard to string more down days unless you are in a big plunge (7% or more).

2) In the past 10 years, I could not find any 10% plus rise in a 2-3 month period that did not form a head or crown over a 5-7 day period before making a big plunge. We have risen 16% since late Aug and hadn't yet formed a head/crown...so the assumption was that this would be a quick correction to the 20 day EMA (or at worst the 50-day). With strong positive seasonality leading up to Thanksgiving coming up, I'm betting on the 20-day EMA, where we are near right now.

Like others like Birchtree say, Monday has potential to be a big upward day. Rising volatility makes me wonder whether this move in would be a 1-3 day thing or maybe wait thru Thanksgiving...but I'm leaning toward 1-3 days...given the fact that I am now fighting both SS's (Sentinels and Sentiment).

 

[airlift]

CH,
Your short-term system allowed me to protect 90% in the G fund. Now the intermediate term 7 Sentinels system has turned negative. If Uptrend is correct and China and others are selling bonds, this might force investors to buy stocks, but the drop might last longer than we expect. I suppose that a bottom will be in place after we get good news such as the QE moneys moving the markets by Thanksgiving? Just guessing.

 

[coolhand]

A sell-off before we begin the holiday season is a real possibility. Since this is OPEX coming up, I'm not expecting the market to fall apart. But we will probably see some volatility. There's probably a short term play for next week, but it won't come without risk.

CH,
Your short-term system allowed me to protect 90% in the G fund. Now the intermediate term 7 Sentinels system has turned negative. If Uptrend is correct and China and others are selling bonds, this might force investors to buy stocks, but the drop might last longer than we expect. I suppose that a bottom will be in place after we get good news such as the QE moneys moving the markets by Thanksgiving? Just guessing.

 

[airlift]

My 10% in stocks is in the riskier S fund. I expect to lose around 6% of this amount. But if I am to be invested during this correction, I have to try to determine if the drop will be deeper and more sustained. If OPEX is only a short-term rallying opportunity to sell stocks into, perhaps I should go fully into the G fund.