What's Next?

This entire week seemed to be anticlimactic given September's historical run. Many traders were looking for a rally leading up to the elections, but few expected it to happen so early. Of course it's possible that September was just the lead-in of a big fourth quarter, but not many are embracing that idea.

There were numerous data points released this morning. Personal income was up 0.5%, which was higher than an anticipated 0.3%. Spending also increased at 0.4%, which was just a tad higher than expected, while core personal consumption increased 0.1%, which was in-line with estimates.

The University of Michigan consumer sentiment reading for September was up from 66.6 to 68.2%, which was above the 67.0 that was expected.

Construction spending improved from a -1.4% drop in July to post a 0.4% gain for August. Economists were looking for a 0.5% decrease.

So far, so good as the data was supportive of a recovering economy, however the ISM Manufacturing Index for September dropped to 54.4 from 56.3. That was a bit lower than estimates.

Let's look at the charts.



NAMO has been moving sideways this week, while NYMO tracked a bit higher. Both are on buys, but also sitting pretty much on their trigger points.



Both NAHL and NYHL dipped with NAHL flashing a sell while NYHL is flashing a buy. But they too are sitting very near their trigger points.



TRIN and TRINQ are now in buy territory and giving a fairly neutral reading.



BPCOMPQ, while still flashing a buy, was flat today.

So the system remains on a buy, but now that September is officially over the question to ask is "what's next"?

Given the big September rally that turned flat the final week of the month, many traders are all but convinced that the market is about to reverse. But the sentinels are neutral in a market that's stubbornly bearish in many pockets. It's very difficult for me to envision a severe correction in such an environment. So while I am expecting some weakness next week, I think it'll be a buying opportunity unless the market begins to fall through key support levels. Of course this is assuming we'll get some selling pressure in the first place. We'll just have to watch and see how next week plays out to get the next clue.

See you this weekend when I post the tracker data.

 

[Birchtree]

I fell into a burning ring of fire. I went down, down, down as the flames went higher. October could be another fake out like September was - or it could burn the tempted. I plan to take off another 10% in a couple of weeks just in case the 4-year cycle hasn't completely nested yet. If we continue to rally without a pause it's only a small sacrifice. However, if we see pressure the S funders could end up burnt toast.

 

[airlift]

CH,
As I compare the 7 sentinels from day before yesterday and yesterday, I see that the day before yesterday we had 3 of 7 signals still flashing buys, which keeps the system on a buy; and that yesterday we had an improvement with 5 of 7 signals flashing buys. As you said, since the market is stubbornly bearish in many pockets, it is very difficult to envision a severe correction in such an environment. Question: does your short term system reflect any indication that might support only a slight correction? If so, we can absorb some risks and ride this out, knowing that the intermediate term indicators of the SS are on a buy? Moreover, all of the moving averages seem to be rising, and the money flow indicator (CMF), although negative, showed improvement in the money entering the SPX yesterday. This would seem to add higher support in the SPX if a correction occurs. What is your opinion on this? Tks.

 

[coolhand]

CH,
As I compare the 7 sentinels from day before yesterday and yesterday, I see that the day before yesterday we had 3 of 7 signals still flashing buys, which keeps the system on a buy; and that yesterday we had an improvement with 5 of 7 signals flashing buys. As you said, since the market is stubbornly bearish in many pockets, it is very difficult to envision a severe correction in such an environment. Question: does your short term system reflect any indication that might support only a slight correction? [/COLOR] If so, we can absorb some risks and ride this out, knowing that the intermediate term indicators of the SS are on a buy? Moreover, all of the moving averages seem to be rising, and the money flow indicator (CMF), although negative, showed improvement in the money entering the SPX yesterday. This would seem to add higher support in the SPX if a correction occurs. What is your opinion on this? Tks.

First question: Yes, that's why I kept 20% in the market. The sell signal I have is not a hard sell because not all components of my short term system are flashing sells. I designed a decision matrix to determine at what point a buy or sell is achieved and based on that matrix it was telling me to sell. As more elements of my system flip to either sells or buys, I think the odds increase for a given signal to be not only be valid, but could portend the severity of the move.

Second question: You could ride this out, but this system like all systems is not foolproof. And the market can change character in a heartbeat. Those elements of my short term system that are currently on buys, could begin to flip to sells, increasing the odds for a more severe correction. But that hasn't happened...yet. And I'm not saying it will. Again, the market can change character in a heartbeat so we watch the action day to day.

Third question: There are both positive and negative crosscurrents in the market right now. I think the positive ones are the prevailing ones and suggest this intermediate term up-leg is still intact. Time will tell if this remains true.

 

[airlift]

CH,
Please give us an early heads up whenever the decision matrix of your system puts out more sells or buys. Tia.