Coolhand's Market Analysis
Time to Buy?
by , 07-26-2009 at 04:55 PM (2257 Views)
Tracking and assessing the Seven Sentinels performance on the tracker is not going to be as easy as thought it was going to be. My original thought was that I was going to trade strictly on the Seven Sentinels signals. But the whipsaw trading action we've had is forcing more interpretation of the signal than I expected. And it's skewing the performance numbers.
The SS gave a buy signal early on in this latest leg higher. But the typical internal set-up one would expect to see leading up to a buy signal was not there. This forced an interpretation of the signal rather than blind faith.
It was only a few months ago that a buy signal was whipsawed within a few days of the signal and the market promptly dropped hard and a SS sell signal was flashed.
This generally does not happen to this Intermediate Term market timing system. But a closer look at the buy signal revealed weak internals, which weren't noticed until the sell signal occurred a few days later.
And it seemed it was happening again the week before last. But this time the results were different, with the market taking off and not really looking back. Had I bought the market with both hands on that buy signal I would be up another 7% right now. Instead, the tracker will only show a modest gain due to a false interpretation of the signal.
The only thing one has to realize here is that no system is perfect and misinterpretations can and will occur. Hopefully, if it's a good system, this will not happen often. The SS has proven to be a very robust system, so I have complete faith that I'll be more successful than not.
So is it time to buy?
The very short term answer is probably yes. I am looking for weakness early this week, followed by some intense buying as all the folks who missed the run jump on the Dow bull market signal and the false H&S breakout. Volatility will almost certainly be with us in the near term.
So I am looking to buy weakness. BUT, if this plays out the way I'm expecting, I'll be selling into the next upward move, which may not last too long as this overbought condition builds and more bulls jump in. I say this because we have two new trades coming next week, which gives me a little more wiggle room this week.
Longer term, we should be looking higher. The SS is still on a buy and I won't hold cash too long. Sentiment will be key. As more bulls are minted the odds of a reversal will increase. How long and how deep that reversal might be is not clear. If the SS stays on a buy with the anticipated volatility, I'll have to be careful not to get too cute, in which case depending on how things unfold I may decide to ride it out till the next SS sell signal (which is actually my preferred strategy).
I'm making a lot of assumptions here, but they are realistic assumptions. As market conditions change I'll make adjustments accordingly.
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