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I actually prefer to use BND to track our F fund and if you look at it's chart, it didn't have a gap down on Thursday but it did put in a “spinning top” candlestick formation with a long lower tail. This can be indicative of a trend reversal, that would be higher in this case. On Sept 22nd, the BND had another “spinning top” formation but with a long upper tail. This lead to a trend reversal, which in this case was down.

If bonds continue higher, odds would be that equities would go lower, but not necessarily.

We have been getting lots of good economic news coming out lately, to include Consumer Confidence going up, Challenger Job Cuts going down, Chicago PMI up, ISM Manufacturing Index up,  Pending Home Sales up and although the jobs numbers on Friday were slightly below expectations, they have been going up and the Unemployment Rate fell to 8.6% from 9.0%. One would think that the economic  outlook is looking strong and the markets should go up, up and away from here right? Well, maybe, but maybe not also.

Take a look at the charts below and see if they are telling you anything.

To me this is saying that yes, the workforce numbers are going up, but it's also telling me that the people going back to work, or starting for the first time, are taking lower paying jobs. This couldn't be too good for future business profits could it? More on that in a minute.

Now look at this graph:

It looks like even though Initial Unemployment Claims may be dropping, those already getting benefits are receiving them longer and many have already reached the limitations of those benefits so they are either forced to accept lower paying jobs or just give up and are out on a street corner somewhere. Either way, they not longer show up as a statistic on the Continuing Claims sheet, so this report itself may be deceiving, just as an increase in the jobs number can be also.

One more thing to consider is this, Friday there was a report out that said 4th quarter earnings forecasts for companies in the S&P 500 have tumbled over the last couple months and the S&P is now seen posting earnings growth of 10% in the 4th quarter. This is down from a forecast of 15% on October 3rd. Eighty-eight companies have issued negative earnings forecasts while only twenty-five have issued positive ones. This is a 3.5:1 ratio and is the largest one since the 2nd quarter of 2001. The S fund lost over 9% that year and over 18% the next.

After last week's gains, one might think that the trend of 2007-2008 has been broken, but if you look at the chart, it could be that things are just happening quicker now and what took 3-4 weeks to occur then might be happening in 1-2 weeks now.

If we are in that green circle area, we might expect to fall back below the 200-day moving average soon and the bottom to fall out in the coming weeks. It appears there may be one last chance to grab a quick gain before that happens though.

Looking at the short term candlestick chart of the S&P 500, you'll see that Friday put in one of those long down tails after Thursday's Doji pattern. Both of these patterns could be signaling a possible down move, but it's not very common to get these types of patterns on back to back days. They indicate a lot of indecision out there and a battle going on between the bulls and the bears. The last time we got a  Doji candlestick after a higher volume big up day, the markets had a pretty big two day sell off.

This week, the most important days should be Thursday, when we get the European Central Bank's (ECB) rate decision and Friday, when we should hear something from the European Summit.

It appears this morning that US equities markets are going to open to the upside once again and is being buoyed by hopes that Europe will be able to solve their solve crisis this week and on a new austerity package being presented by Italy to helps with it's problems. I'm sure that a lot of subscribers will once again be questioning rather or not my system and it's indicators work in such a news driven market. My response to this is that yes they do work and although my return isn't up where I would like it to be, or where it should be, it has still guided me to a return of 5.54%. This is better than the C fund's 0.85%, the S fund's -3.51% and the I fund's -10.57%. I wish that I had stuck with my original system all year because my return would now be 24.41% after Friday's close and it would show just how good it is, even in these news driven markets. However, I did not as my emotions got the best of me but it was a learning experience and all I can do now is move on and use this experience to make sure it doesn't happen again.

Most trading systems that are in use today use technical indicators to tell them when to be long or short on the markets and these systems are more “reactionary” in that they give signals based on what the markets have done recently. If an indicator turns down and gives a “sell” signal, it typically means that the markets have turned down. This is what is hurting these technical systems this year as the markets can go down hard for a few days but then come back up just as quickly. This is causing a lot of “whipsawing” in these particular systems as the trends have been fast furious and not as prolonged as they have in the past. This has also led to one technical trader to say in an interview this weekend “This is killing our models, I've never seen such a volatile news driven market.”

My Timer system is based largely on currencies, commodities, volatility and proprietary timing patterns and attempts to show me what the big money traders are doing and is more predictive than reactive. The one thing that the daily volatility is doing is to keep me on trades for a bit longer than usual at times. In the past, my average trade has been 4-5 days, but there have been times this year that I have remained in trades for 2-3 weeks at a time. This is showing me that the dumb money panic selling and buying can throw the more knowledgeable traders for a loop at times and the big money has just had to remain patient until the trading volumes decrease and they can continue to do what they do. I believe this is one of the reasons that when we see a higher than usual trading volume day in the markets, it can be sign of impending reversal in the next few days. Even traders have had to remain patient this year.

Even with this morning's rise in the markets, my indicators are remaining on a sell signal at this time and that shouldn't change. If it does, I will send out an alert. The 1260 level on the S&P 500 provided resistance on Friday so I'll be watching to see if it closes above this today. The markets pulled back as the day progressed on Friday so we'll see if this happens again today or not also. I think today's gains may hold but I also think we pull back tomorrow and possibly Wednesday as well. This pullback could be pretty big and I think my system will most likely be giving a buy signal sometime this week, most likely Wednesday.  This is just a guess though.

Quote of the Day:
" Indecision is debilitating; it feeds upon itself; it is, one might almost say, habit-forming. Not only that, but it is contagious; it transmits itself to others." - H.A. Hopf


Live, laugh and love!!!!!!!!

Intrepid_Timer

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If you have any other questions, please let Tom know. Thanks.
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