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Update: The Best Stock Market Indicator Ever.

  • Written by Syndicated Publisher 2 Comments2 Comments Comments
    February 21, 2012

    The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com that can be used to forecast conservative entry and exit points for the stock market.

    The OEXA is used to find the “sweet spot” time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.

    The chart below is current through the February 3rd close.

     

    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:

    The market is tradable.

    OEXA200R remained well above 65% all week and closed at 87%.

    Of the three secondary indicators:

    • RSI is above 50 and positive.
    • MACD has crossed and is positive.
    • Slow STO is above 50 and is positive.

    Commentary

    Germany to Greece: “Don’t let the door hit you on the way out”. After Greece’s final death rattle we’ll find out how well the much touted Siegfried Line firewall holds up.

    Not that we should be so smug. We’re well on our way to building the ultimate asset (or “anti-asset”) bubble catastrophe: U.S. sovereign debt. That storm should hit in about 10 years, just as the baby boomer tsunami surges into the already unsustainable entitlement system. Yeah, but if we just tax the rich for their fair share, that ought to take care of the problem, right? Only if you can’t work a $2 calculator. Not renewing the Bush tax cuts on $250K+ earners will bring in $80 billion in additional tax revenue, if you optimistically assume that static analysis is correct. $80 billion is 6% of the $1.3 trillion annual deficit, almost a rounding error. Eliminating the Bush tax cuts for the middle class as well would raise an additional $300 billion a year. That would still leave 70% of the annual deficit.

    At a House Budget Committee hearing on Thursday, Chairman Paul Ryan produced a chart from the CBO showing debt hypothetically rising to 900% of GDP circa 2075. “They cut it off at the end of the century because, according to the CBO, the economy shuts down on this path in 2027 anyway”, said Ryan.

    There’s an old saying in economics: An unsustainable trend always comes to an end. Our trend is unsustainable, and mathematics has no sympathy. Unfortunately, nothing will change until our political class and the electorate who hires them experiences the economic equivalent of Pearl Harbor.

    But for now, the OEXA200R remains in positive territory. When it eventually drops to 65%, that will be the early warning signal to exit all long positions, sit on the sidelines with your cash and watch and wait for a bit. At 87%, it gives us plenty of time to plan for that eventuality. Until then, have another Ouzo and enjoy the party while it lasts!


    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

    John F. Carlucci is a regular contributor to Advisor Perspectives and the author of “Ashes to Riches: How to Profit Spectacularly during the Economic Collapse of 2012 to 2022”, published by Endeavour Press Ltd., and also available on Amazon.com.

     

    Images: Flickr (licence attribution)

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    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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