Has the Correction Started?

Posted by mturner on October 21, 2009 under Bull/Bear, Investing, Stock Market Update |

October 21, 2009 — The big question this evening (Wednesday) is whether or not the 170 point drop in the DJIA from the highs today, is the much forecasted (at least by me and others) start of a correction? Take a look at the Cycle Forecast Model, below:

The forecast model peaked on October 14, just one week ago. It called the market top one week in advance of the actual event (Circle A)… IF the market continues to move lower from this point. The model is forecasting that the market will continue generally lower until November 5 (Circle B). I hate to keep reminding you of this, but new subscribers are joining this distribution list every day… The above chart is a forecast ‘model’… not a forecast fact.

I have been using cycle charts for quite awhile now and find them to be useful in picking broad strategies. For example, right now I am short the USD, long oil, long gold, long natural gas, long Australia, long Canada and long Brazil. I am avoiding US companies (except for oil and gas) for the most part. Much of the timing of when I become more or less bullish or bearish is predicated on my forecast models, of which the Cycle Projection above, is one.

If the market continues to move lower on Thursday and Friday, I will be buying some Inverse ETFs and shorting US stocks (more on this, below). You might wonder why I am waiting to short the market since the above chart is so clearly predicting a significant move lower. Look back to the August 18 timeframe… Notice the severity of the move lower by the model. Yes, the market fell a bit, but not precipitously so. The key elements of these forecasting models are the turns (tops and bottoms)… not amplitude (severity of market movement). So, I will wait until a better downward trend develops before I jump in to a lot of short positions.

Now, take a look at the Turner CrossOver Oscillator, below. You can readily see at the far right of the chart that the Composite Index (black line) has moved below Short Sell Index (red line). This is indicative of a correction warning and reinforces the Cycle Forecast Model, as well.

The Turner CrossOver Oscillator provides an indication of the over-bought or over-sold condition of the market. The red line (New Short Sell Index) shows a technical direction and strength (or lack thereof) of investors to push stock prices lower, triggering new Short Sell Signals. The higher the Short Sell Signals line, the more Bearish the market. The black line (Composite Index) is the combined impact of both the new Short Sell Signals and the new Buy Signals and is an indication of the degree of oversold or overbought condition of the market. Buying opportunities exist when the Composite Index is moving higher. The higher this line moves, the more Bullish the market. Market bottoms are represented by a change in direction of the Composite Index from moving lower to moving higher. Market corrections become much more likely the Composite Index crosses the Short Sell Index from above the Short Sell Index to below the Short Sell Index. The market is represented by the green shaded area.

EQUITY Portfolios Update…

EQUITY IV is up over +2% so far this week. EQUITY I, II and III are fractionally lower, but still nicely beating the market, which is down -.6% so far for the week.

When the market was moving much higher this morning, we were raising stops. We got out of our CDE option covered call trade in E4 at the high of the day and made a very health profit of 33% on the trade!

My Strategy for the Rest of the Week…

Capturing profit, where possible, will be the plan. It is very likely that many of the holdings we have in the portfolios will move higher in a falling market. We already own UDN, which moves higher when the USD moves lower. Energy stocks continue to look strong, but could succumb to a significant correction, so I’ll be looking to put profits in the bank when possible.

If we get another 100 point down day in the DJIA, I will be shorting or taking on short biased trades.

However, I am not looking for long-term trades. Most of my trading for the rest of the week, will be of the day-trade variety. You should note the upward wiggle in the Cycle Model chart between Circle A and Circle B. That could be a head fake move higher. I don’t want to be caught holding too many short position when and if that even occurs.

Advanced Cycle Predictive Model Project…

We are developing a new and innovative market forecasting model using sophisticated cycle analysis. I believe the charts generated from this cycle analysis are highly valuable and very helpful in navigating the market for timing when to get in and when to get out.

The cycle chart above of the S&P 500, for example, is an early generation of the forecasting tool we are building. We believe we will have a working system, ready for launch either late this year or early in 2010. Our team of developers and analysts have significant and vast knowledge in the field of the study of cycles. We are very excited about their progress, so far.

We are currently accepting interested individuals into a ‘beta group’ (I call this group my ‘Initial Product Offering’ IPO list) who want to help us test and review the product as it nears completion. This group will get advanced, proprietary insight into this new product. Beta group participants will also be able to offer suggestions and ideas that they believe should be incorporated into the final product. Currently, we have 317 that have signed up. At this rate, I suspect our goal of 500 will be reached in the next few weeks. There is no obligation for getting on the list, but the list will be capped at 500. Once the product is operational and available to the public, these 500 will be given the opportunity to subscribe at a substantial discount. If you want to get in this project, you must let me know now. This is a great opportunity for you to be involved in some cutting edge technology development. If you are at all interested, you should get on this list.

If you want to be included in the 500 IPO list, and if you have not already notified us, just reply to this email with the phrase, “Put me in the IPO list” in the subject line. If you have already done this, you DO NOT have to respond again. I have not sent out any emails to the list of participants, yet, but plan to do so tomorrow.

Remember, when it comes to making money in the stock market, let your rules make the decisions… not your emotions.

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