The SPX declined 28.65 points Friday to close at 1190.59. TOT daily traders were on the sidelines for the session.
The super long term perspective for the stock market remains bearish. However, both the long and short term models remain bullish, quixotic as that may seem.
There have been very few structural changes in the market over the past quarter century. The most well known are the introduction of index futures and the end of fixed commissions. These and the few others have had a profound impact on market analysis. I may – and I do emphasize “may” – have uncovered a new one currently occurring in some research I did on the plane while going cross country late Sunday. It will take me at least several days or longer to further test the hypothesis. If it proves accurate, it would explain why my models have been working so poorly lately. On the other hand, I don’t want to curve-fit, i.e. make the conclusions fit the hypothesis, and so I will be doing this research very carefully. In the meantime, by raising the bar, so to speak, on the parameters required to generate a buy or sell signal for the models, we will be on the sidelines more often, but we should have a lower percentage of losing trades when we do trade.
The directional component of the daily model is bearish today, and if the risk component were not excessively high, it would be a difficult call to decide whether to go short after the type of weakness that we’ve had recently. However, since the risk component is extremely high, that pushes the model to neutral, and therefore staying on the sidelines at the onset of the day becomes an easy decision.
However, if the market can get a head of steam going to the upside, and if it is accompanied by certain other signs of accumulation, then it’s possible that we might get at least a respite from the relentless selling. But officially, we’ll stand aside today.
Since initiation of this service on September 30, 1993, our daily trader recommendations have gained 6485.75 cumulative SPX points compared to a gain of 731.66 points in the index itself over the same period.
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