Stock Market Update

Published: Sun, 09/25/16

Good morning Traders,

We're going to ramp up our free newsletter ahead of the election and feature some market timing indicator charts from the previous week to help you with your trades.

As for the election, we follow Nate Silver's modeling work for an independent view on the probable outcome.  Why?  Because the outcome can impact the markets.  If the current party remains, volatility will stay low.  If there's a change in party, then investment managers will need to change to reflect the most profitable way to play the new administration.  This will increase volatility. 

So when we talk about investment managers, this indicator (one of several) shows us what they're doing:


Subscribe Now!
The NAAIM has several measures.  This is just 1.  The top line shows the leverage of bullish money managers (which is normally 1.5 to 2x in bull markets.  We're just now starting to see a turn lower, which should work towards a bottom over the coming weeks.

The key with this indicator is to wait for it to give you a bottom call.  Which is a reading around 100 or below.  If you're a stock trader, this represents a good time to considering a buy (in review with the specific stock chart of course). 

A quick review of our charts from this week shows sentiment working towards a bottom, but not quite there yet.  Oil inventories are topping, but the smart money continues to position for downside.  ETF Money flow is also topping, but equity fund flow has been selling off for some time.  And our own Cumulative Tick Index is flashing some weakness per below:

Subscribe Now!
The Cumulative Tick signal above needs to start trending lower, which means buying pressure is leaving the market and selling pressure is taking over.  In '07, that lead to very strong selling in the market.  In '11, that resulted in a range bound market and in '13, the market continues to trend higher before setting lows later in '16. 

I don't expect a significant sell off.  But I do expect selling which will set up the next level of stock and option plays.  The election will dictate a lot of how the market behaves in the 4th quarter. If things remain status quo, we would expect the selling to hold off until late December. 

Regards,

Carl Adams, Publisher
Investment Research Group, Inc.



To subscribe to The Daily Stockbarometer, simply click the link below and use the discount code DSB1 to get your first 4 weeks for only $1:


Click Here to Subscribe!