I hope you have been following the Market Timing signals as they appeared on the Market Timing chart and on the front page of VectorVest. A lot has happened since last weekend.
After trading on Monday of this week the Primary Wave turned UP and that gave the most aggressive of traders the first signal to buy some stocks or the entire market via an ETF or a spread bet. I chose the latter.
After trading on the 17th (Wednesday) the second signal appeared. This is known as a Green Light BUY and it’s shown visually as a Green Light in the price column of the Color Guard on the front page of VectorVest. This means that the price of the VectorVest Composite is UP day over day and week over week and that adds weight and confirmation to the Primary Trend.
Also after trading on Wednesday the 17th the DEW Market Timing signal gave a BUY signal. This system has been very accurate over the past few months. I have been travelling and haven’t reacted to the signal as yet and will leave it to Monday at the earliest.
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The underlying trend as defined by the Market Timing Index is still down, so as I write the LSE Composite is technically in a UP/Down position. The breadth of overall market, although improved is still weak, with twice as many shares on a SELL recommendation as on a BUY. As discussed last week the combination of the much oversold MTI and the bullish divergence with price, predicted the rally that we have experienced this past week. The overbought and oversold levels on the MTI is money in the bank for aggressive traders. Oversold is a MTI level of 0.60-0.65 with overbought around 1.6 and higher.
Thursday and Fridays market action charted “Doji” or indecision candles on the VectorVest Composite. These candle patterns can be both a reversal or continuation pattern. A break above will mean that the trend will continue strongly. A break below and a pullback is highly likely. This pullback at my most positive would result in a rising bottom and at my most negative would be mean a continuation of the bear trend which has been a trade mark of 2016. I think that the probabilities favor a pullback at least during the week ahead. As with all things trading related, time will tell. If the Primary Wave on VectorVest changes back to Down than I will short the overall market with a spread bet.
My institutional trading chums, who tend to trade strongly on cross market relationships, believe that the strength in Gold and the strength in the Yen does not bode well for a turn up in equities soon. Both Gold and the Yen are flights to safety. Gold may not pay a dividend, interest or coupon but at least you don’t have to pay to park your cash there. These expensively suited fellows feel that Golds rise is being driven by investors who are losing faith in central bankers’ ability to deal with the challenges ahead.
On the Composite and on the Ft100 the high of the rally this week was defined by a trendline of the falling highs of the selloff. I think you will find it easy to draw this line from the high on the 29th December last year, to the high on the 29th of January 2016. This line projected forward defined the resistance met by both the VectorVest Composite and the Ft100 during the past week. On both indices the resistance also occurred at a FIB retracement with the Composite stopping at 78% of the last range. 0.78 is the square root of the Golden Section 0.618 and a very important number within creation. The chart of the Composite showing the FIB levels is below.
I will be much happier buying into stocks when the Composite has broken above last week’s highs and has shown the resistance spoken about above, a clean pair of heals. As the DEW has given a BUY signal I will wait until the market breaks higher and is showing Green Lights in the Color Guard before getting onboard. The advice on the front page of VectorVest will tell you what to do.
Conservative investors should wait until any move is signaled by a Confirmed Call.
David Paul
MD, VectorVest UK
February 19th 2016
David uses VectorVest. You can try VectorVest for 5 weeks for just £5.95 ($9.95) – Click here to get started
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