Best Stock Market Indicator Ever: Weekly Update
The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money.
The weekly charts below are current through the week's close.
Weekly OEXA200R vs. S&P Comparison
According to this system, the market is now Un-tradable. The OEXA200R ended the week at 82%, unchanged from last weekend.
Of the three secondary indicators:
- RSI is NEGATIVE (below 50).
- MACD is NEGATIVE (black line below red).
- Slow STO is POSITIVE (black line above red).
The RSI remains within a hair of being positive and with the slightest nudge of an up market next week will trigger a Tradable condition for this system.
My feeling is that we're entering the final euphoria phase of the five-year stock market bull, and I'll be watching warily for major resistance points in the coming months. One in particular will be when the Nasdaq reaches 5000, the same top as in year 2000, maybe by this June or July. I'm very surprised at how large this bubble has grown, fueled by the Fed's single-minded determination to support Wall Street.
Think about where the market would probably be today without QE, and you get an appreciation for how much artificial price distortion has taken place. Either way, the euphoria phase is a great money-making opportunity and if it blows through Nasdaq 5000 and goes on for another year or two that would be even better! Unfortunately, all bubbles eventually burst. I think Doug Short's analysis is right on the mark in that regard: "If the S&P index should decline over the next few years to a level comparable to previous major bottoms, it would fall to the 450-500 range." On the bright side, when the counter-balancing correction to this bull finally happens it could be one of the most incredibly profitable short trading opportunities in our lifetime.
Background on How I Use This Indicator
The OEXA200R is a valuable metric used to accurately assess the state of the market in order to make profitable trading decisions. That is, whether we are in a bull, a bear or transitioning from one to the other, as well as market volatility and risk within each of those situations. Historically, it has also given traders a clear early warning signal of impending serious market downturns and later safe re-entry points. While not intended as a day trading tool per se it can certainly be used as background information by high frequency traders. Simply put, the OEXA200R gives traders the ability to identify the most opportune conditions within which to execute their various long, short or hold strategies.
Following a major market correction, the conditions for safe re-entry are when:
a) Daily $OEXA200R rises above 65% (I follow the Daily but do not publish the chart here)And two of the following three also occur:
b) Weekly RSI rises over 50
c) Weekly MACD black line rises above red line
d) Weekly Slow STO black line rises above red line
Without the solid foundational support of two out of three Weekly secondary indicators it is unsafe to trade even if Daily OEXA200R edges above the 65% line. The market is considered safely tradable as long as Daily OEXA200R remains above 65% and two Weekly secondary indicators remain positive. Volatility and risk for long traders are relatively low. The trend is on their side.
Conversely, when Daily OEXA200R drops to 65% and / or two out of three Weekly secondary indicators turn negative it is taken as the conservative signal to exit all long positions, even if Daily OEXA is above 65%. Volatility and risk increase substantially. In the past, this has often been a "tipping point" condition presaging a substantial market drop.
For simplicity sake, just look for the notice in the "Interpretation" section above as to whether the market is either "Tradable" or "Un-tradable".
(c) John F. Carlucci