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Update: The Best Stock Market Indicator Ever?

  • Written by Syndicated Publisher 2 Comments2 Comments Comments
    January 10, 2012

    As we all know, the key to successful investing is very simple: “Buy low, sell high.”

    However, you enter a chaotic, fun-house world of uncertainty once you ponder the logical follow-up question: “When?”

    The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to accurately forecast conservative entry and exit points for the stock market. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.

     

    Click to View

     

    After a major S&P correction, the conditions for safe re-entry into the market are when:

    • a) $OEXA200R rises above 65%

    And two of the following three also occur:

    • b) RSI rises over 50
    • c) MACD cross (black line rises above red line)
    • d) Slow STO (black line) rises over 50

    Interpretation:

    Although the primary indicator, OEXA200R, is at 66% this only occurred late Friday afternoon. It had been below the 65% threshold all week and shows no sign of a bullish trend. Therefore, I would interpret the indicator as neutral at the present time.

    Of the three secondary indicators:

    RSI is at 51.21, again occurring only late Friday. As with OEXA200R, I would interpret the indicator as non-bullish and neutral at the present time.

    MACD has not yet crossed into positive territory and so is also non-bullish and neutral.

    Slow STO at 61.57 is the only strongly positive indicator.

    Conclusion:

    There is only one strongly positive indicator, Slow STO, and that is a secondary indicator. The primary indicator and the other two secondary indicators are neutral and non-bullish. Simply put, the market remains unstable and is not yet safe to re-enter for normal long position trading.

    Commentary:

    At present, all eyes are on Europe.

    There is more than 457 billion euros of euro zone government debt due to be repaid in the first quarter of 2012. Italy has to repay almost 113 billion euros in the next three months at a time when its funding costs remain at near unsustainable levels. The euro is on a downward trajectory against other currencies. All things considered, a regional recession seems a foregone conclusion and the Eurozone and euro will most likely unravel in the near future.


    NoteStockcharts.com offers free access to the $OEXA200R indicator on a daily and weekly basis. The monthly view requires a subscription.

     

    (c) John F. Carlucci

     

    Images: Flickr (licence attribution) 

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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