I have had a lot of questions about buy signals and when will be good time to get back in the markets. Ok let me clear something up really quick so you understand how hard that question is to answer. Just think of a light switch, you turn the light switch on to make the light come on, so how do you turn it off? You cannot have one without the other. So when I get a buy signal it is good until I get a sell signal. Does this make it easier to understand? So if you bail for gut or news reasons, it makes it really difficult to use my system effectively. That is the Black and White answer. Within every uptrend and downtrend you will have pivot lows, pivot highs, bull flags, and bear flags that will give you a another opportunity to get back in or to put more capitol to work.
Right now the S&P 500 and Small Cap are in Bull Flag patterns and last Thursday, 28th, they appear to have broken out. The first thing I want you to do is watch this video.
Before I talk anymore about the Bull Flag pattern, I want to look at the monthly, weekly, and daily charts of the S&P 500. So let’s get busy.
Above is the monthly chart of the S&P and what is the first thing you notice? Are we in an uptrend or downtrend? If this was a stock and and a daily chart, I would want to own it. So monthly, the S&P 500 is a go. Agreed? The green line is are primary trend and we will move this to our weekly and daily charts.
Ok the weekly the chart looks as good as the monthly. We can pickup a few more details here and one is in the upper right of the chart, we have an intermediate trend inside our primary. These are great because they give you a secondary signal when price is getting ready to collapse long before the primary trend collapses. The 10 and 30 weekly moving average are perfect and rising and may need to slow down a bit. Lastly not that it really matters to me, but it is just good to know information, the yellow circles indicate at those dates on the chart we were and are current overbought. Just in case that term confuses you, price is rising to rapidly to maintain the rate of climb. Let’s move to the all important daily. Well to me it is important.
First thing let’s look at and take note of the primary and intermediate uptrends. They look great and are perfectly intact and not under any warnings at all. The 50 day moving average is rising and price is still well above and safe. The current CBL is the bottom of the Bull Flag pattern and yes it was under stress, but currently safe. As of Thursday the 28th, price closed above the Bull Flag and that is another buy signal as long as price Monday stays above the Flag price of $1565 by 11:30am Monday. So there you have it, a potential re-entry Monday as long as price holds above.
Now let’s get back to buy signals and sell signals. The last official buy signal fired 11/29/2012 and I have been in since that time. No exit signal has fired since, so when you ask me for a buy signal today, you can now see how hard that question actually is for me. Sometimes I give you that glazed look because you want me to commit to something I cannot do. I need an exit signal and then an entry signal in order to give you that information and I’m currently still waiting on an exit signal.
Re-entry or add more money to your current investment. In the business of stocks there is one rule that professional traders live and die by. Remember this forever. You always buy more of a winning position and never add to a losing position, EVER! This works for me almost every single time in individual stocks. Now back to our TSP. Pivots and Flags give you secondary opportunities to re-enter or add to you positions. Since the last official buy signal we have had 3 higher pivot lows which say add to me or re-enter. We have also had 3 bull flags say the same thing.
Ok, if you watched the video link above you know what a Bull Flag is, what price normally does, and that you can measure a target price. So if the current Bull Flag holds Monday and it is a confirmed breakout, what is our target price? Are you ready for this? Really? Remember, it is not a guarantee but a target where you expect price to go and where you expect price to stall. The chart below is going to show the current flag and the last flag. Look at that last flag very closely. Price target hit almost to the penny. So let’s take a peek.
Yes I changed colors so I didn’t mess up my primary working charts. So now you can see clearly the last bull flag and how well that worked out and you can also see the current bull flag. Based on the length of the flag pole and the breakout point, we are targeted to S&P $1641. Do you think that is to crazy high? Really? What’s to stop it now that we have no other all time high’s to take out. Closing high’s, not trading high’s before you ask the question about $1576. Don’t care about trading high’s, they mean nothing, closing price is where at the end of the day buyers and sellers decided price was at the right price for the day. $1641 is only 4.5% higher then where we are right now and we have already traveled 10% YTD, so 4.5% doesn’t seem that large to me.
I’m not putting charts up for the Small Cap because it is the same as the S&P, except for the actually numbers. Target price for the Small Cap is another 50 points higher to $873 or 6% higher than the current price. Small Cap need to hold above $824 Monday morning through 11:30am to confirm breakout.
You already know that I’m not real crazy about the International Index so I would steer clear of that for awhile. Bonds did give a buy signal, but I’m not ready to run to safety yet, so I’m personally ignoring that buy signal. I believe that if the S&P and Small Cap takeoff next week and beyond, that Bonds will eventually collapse and the buy signal will fail. That is not a prediction of what is going to happen, it is an observation of what might happen.
I’m staying fully invested with 50% C and 50% S until I’m given a reason to exit.
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