Recent stock market action has brought the major indexes into at least a correction zone, if not an outright new bear market. So, if this is a new bear market, how can you dodge another bear bite? [I have 4 suggestions on how to do just that. Read on!] Words: 746

So says John Nyaradi (wallstreetsectorselector.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Nyaradi goes on to explain:

click to enlarge

Chart courtesy of stockcharts.com

In the chart of the S&P 500, above, you can see how the index has taken a sharp decline since the highs of mid-July. It is now below its 200 day and 50 day moving averages (red and blue lines) and has broken several long term trend lines. Furthermore, the 50 ma has crossed below the 200 day ma, forming what is widely known as the “death cross” which is a quite reliable statistically proven technical indicator [see here (1) for a recent article on the current "death cross" event]. While not perfect, as no indicator is, the “death cross” has managed to sidestep the biggest part of every recent bear market, while its counterpart, the “golden cross” has captured significant gains during bull markets.

However, it should also be noted that support at the 1120 level has been tested several times and so now the bears will have to push through that level to confirm that we are actually in the beginning days of a new bear market.

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It is my opinion that this trading range will not continue for very long and that we’ll see a directional breakout, either up or down, within the next few weeks. Technical and fundamental conditions would indicate that the likely probability of that move would be down. If that turns out to be the case, as investors and traders, we have several choices if we believe a new bear market is upon us:

1.  to “buy and hold” which is the conventional wisdom and which I believe is quite ineffective in today’s volatile markets since the major indexes are still far below where they were in 2000 at the beginning of the “tech wreck” more than 11 years ago.
2. to head for the safety of cash which many investors have done or to head for the safety of Treasury bonds and bills which have also seen a huge influx of funds in recent months and days. This strategy gets you out of harm’s way if the market indeed does continue its downward trajectory.
3. to actually attempt to profit from declining markets and to do that, investors/traders today can use inverse exchange traded funds that move opposite to the action of the underlying index…
4. to use put options, either as portfolio insurance on currently held positions or as directional bets in search of profits.

So from the above discussion we can conclude that we are at the very least in a significant correction of an ongoing bull market or either in or close to entering a new bear market. Coming days will tell us which way things will go and confirm this one way or other.

Conclusion

Whatever happens, exchange traded funds offer the power and flexibility to seek profits in any market environment.

* http://wallstreetsectorselector.com/2011/08/how-to-dodge-a-bear-bite-etf-news-alert

Title and Link to Article Referenced Above:

1. S&P 500 “Death Cross” Now in Place! What are the Implications? 

We have ongoing debt crisis talks in Europe, weak housing data in the U.S., tepid growth in Germany, and higher than expected inflation in the U.K. [and, in addition to] all this “cheerful” news, the recent “death cross” that [has occurred] on the S&P 500 Index. While a “death cross” is concerning and should be respected it does not mean the end of civilization as we know it, however. [Below are the results of a long-term study that clearly defines what the short and mid-term implications are, in fact, for the market.] Words: 700

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

The trend is your friend and this article reviews the 7 most popular trend indicators to help you make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it. Words: 1579

So says Lorimer Wilson (www.FinancialArticleSummariesToday.com) and editor of www.munKNEE.com. Please note that this paragraph must be included in any article reposting with a link* to the article source to avoid copyright infringement. Wilson goes on to say:

There are over 80 market indicators divided into 6 categories (trend, momentum, volatility, market strength, support/resistance and cycle). That being said some are very technical, some are infrequently used and some are more effective than others. The most popular indicators, and also available for use free at online charting service such as stockcharts.com and/or bigcharts.com, are those regarding:

• market trends
• market momentum (see here for a description of use of these indicators) and 
• market strength and volatility (see here)

(Also, to even further understand the Patterns, Trends, Indicators and Formations of Technical Analysis read this article and for some insight into the merits of fundamental analysis go here.)

It is always hard to know what to buy or sell let alone just when to do so. Thank goodness there are indicators available that provide such information. Below are descriptions of the 7 most popular trend indicators: Crossovers; Moving Average Convergence Divergence; Percentage Price Oscillator; Keltner Channels; Parabolic SAR; Traders’ Index; and Advance/Decline Line.

Trend Indicators
The price movement of a security over time is most easily analyzed by observing how its moving averages are trending. Either a simple moving average (where the movement during a specific time period is divided by the days of that time period) or an exponential moving average (where a mathematical formula gives greater emphasis to the more recent price movement) can be used and any period of time (up to 360 days on the various fine charting sites) can be studied.

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The most common short-term time period is 20- or 21-days using an exponential moving average (ema), while the most popular medium-term periods are the 39- or 40- and 50-day using a simple moving average (ma).

To observe the long-term trend of the price movement of a security a 200-day ma is usually used and occasionally a 100-day ma. That being said, a large number of variations have been developed to satisfy particular needs and situations.

Seven of the most popular trend indicators are as follows:

1. Crossovers
- used to forecast the future movements in the price of a stock such as when a stock or index moves above (bullish) or below (bearish) its 20-day moving average.

When a security’s long-term moving average (e.g. 50-day ma or ema) moves above its short-term moving average (e.g. 20-day ma or ema) it is referred to as a Death Cross and indicates a bear market on the immediate horizon, especially when it is reinforced by high trading volumes. Conversely, when a security’s short-term moving average moves above its long-term moving average, coupled with high trading volumes, it is referred to as a Golden Cross and indicates a bull market on the immediate horizon.

2. Moving Average Convergence Divergence (MACD)
- a trend-following momentum indicator of the exponential moving average (ema) of a stock or index which is used to identify short-term momentum. Specifically, the 26-day ema of a stock or index is subtracted from the 12-day ema to show an intermediate trend line. A 9-day ema, the ‘signal line,’ is then plotted over that intermediate term line to identify when to buy or sell the stock or index. When the resultant MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell.

Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before buying or selling to avoid doing so too early and thereby avoid being ‘faked out’.

Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the intermediate-term average. When the MACD is above zero, the short-term average is above the intermediate-term average, which signals upward momentum. The opposite is true when the MACD is below zero. The zero line often acts as an area of support and resistance for the indicator.

3. Percentage Price Oscillator (PPO)
- similar to the MACD but while the MACD shows the simple difference between the 2 exponential moving averages the PPO expresses this difference as a percentage which allows a trader to compare stocks with different prices more easily.

For example, regardless of the stock’s price, a PPO result of 10 means the short-term average is 10% above the intermediate-term average. That makes it much easier to choose one stock over another should the need arise.

4. Keltner Channels
- moving average bands/channels where the upper line represents the average high of a security over a 10-day period; the lower band the average low of a security over a 10-day period and the centre line the closing price of a security over the same 10-day period.

The trader is to sell the security when the closing price exceeds the upper band and to buy the security when the closing price falls outside the lower band. Like the other indicators mentioned it is best to add two or three other indicators to one’s charts to confirm any buy/sell signal.

5. Parabolic SAR
- used to determine the direction of a security’s momentum and the point in time when this momentum has a higher-than-normal probability of switching directions.

The parabolic SAR is shown as a series of dots placed either below a security’s price on a chart (a bullish signal causing traders to expect the momentum to remain in the upward direction) or above (a signal that the bears are in control and that the momentum is likely to remain downward).

As the price of the security rises, the dots will rise as well, first slowly (i.e. spaced well apart) and then picking up speed (i.e. getting closer and closer together) and accelerating with the trend. This accelerating system allows the investor to watch the trend develop and establish itself. The SAR starts to move a little faster as the trend develops and the dots soon catch up to the price line and that is when it is time to buy the security. A sell signal is triggered when the price line moves below the lower dot enabling an investor to position a stop-loss order.

The ability for the parabolic SAR to respond to changing conditions removes all human emotion and allows the trader to be disciplined. On the other hand, while the SAR works extremely well when a security is trending, it can lead to many false signals when the price moves sideways or is trading in a choppy market. That being the case, it is paramount that other indicators such as the stochastic oscillator, moving averages, etc. be used to ensure that all information is being considered.

6. Traders’ Index (TRIN)
- a short-term breadth indicator which measures the ratio of advancing stocks to declining stocks and compares it to the ratio of advancing volume to declining volume.

When advancing volume exhibits discordance with the raw number of advancing stocks, the all-important sell signal is given. Conversely, when volume on the downside increases out of proportion with the number of declining stocks, an upside reversal is said to be imminent.

It is important to note that TRIN is handled differently in each of the different market conditions. In a bull market, the overbought line is placed at 0.65 or 0.70 but in a bear market at 0.70 or 0.75. The oversold line is placed at 0.90 or 0.95 in a bull market and at 1.00 or 1.10 in bear markets. Assuming the market has been correctly identified as a bull or a bear and the overbought and oversold lines have been correctly placed you should buy when the current TRIN crosses above its oversold line and sell when TRIN sinks below its upper overbought line.

When interpreted properly, TRIN can be one of the most powerful and accurate means of assessing the psychology of the market.

7. Advance/Decline Line (A/D)
- used to confirm the strength of a current trend and its likelihood of reversing. If the markets are up but the A/D line is sloping downwards, it’s usually a sign that the markets are losing their breadth and may be setting up to head in the other direction. If the slope of the A/D line is up and the market is trending upward then the market is said to be healthy.

Remember, the trend is your friend and now you have an arsenal of such indicators to make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it.

*Original Source: http://www.munknee.com/2011/05/timing-the-market-using-trend-indicators/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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Technical

Should You Invest in Chinese Stock Market Instead of Gold?

There has been a great deal of excitement about the recent performances of gold and silver with most analysts extremely optimistic regarding their potential. That being said technical analysis shows that gold is in for some choppy seas ahead compared to the surging seas of the Chinese stock market. Perhaps today the refrain “Got Gold?” should be replaced with the words “Buy Chinese Stocks!” Words: 1004

So says Nu Yu, Ph.D. (fx5186.wordpress.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted into edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Dr. Yu goes on to say:

Gold in a Bull Market With a Bearish Basis for the Intermediate-Term

At this point when the gold price is sitting on a near all-time high, it has developed two major patterns that should draw our attention.

1. Ascending Broadening Wedge
The first pattern is a 7-year Ascending Broadening Wedge or megaphone formation confined by line A and line B. This pattern for gold is similar to a rising wedge but with a broadening price pattern, and it tends to appear in a bull market with a bearish bias. The most important feature of this pattern is that the swing amplitude between two boundaries becomes larger and larger, and price movement gets more and more volatile. This feature indicates that the price of gold sooner or later will have a downward swing to re-touch or re-test the lower boundary (line B), although the big upward swing generates a great attraction like fireworks.

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Gold currently has a very broadening range between $900 and $1,400. Once a downward swing happens, a drawdown could be very significant, with no mention of any potential downside breakout.

2. Rising Wedge
The second pattern for gold is a 2-year Rising Wedge formation confined by line A and line C (see chart here). This pattern also typically has a bearish bias but it can be realized only when a downside breakout happens at the lower boundary of the wedge. It looks like that two boundary lines of the current rising wedge on gold will merge at near the price of $1,500. It indicates there is a big potential for the price of gold to test the lower boundary line C of the rising wedge in the next three to six months before reaching $1,500.

A combination of an ascending broadening wedge and a rising wedge is a typical characteristic of a state of increased disequilibrium driven by overconfident market participants and is a sign gold is setting up a potential powerful volatility storm in the near future.

The Shanghai Stock Exchange Composite Index Expected to Have a Fierce Advance Soon

Since the bearish Death Cross in the early part of this year  the Shanghai Stock Exchange Composite Index (SSECI) has been depressed and has been in a downward channel for the last 14 months. However, a new uptrend should start after the bullish Golden Cross, which I define as a successful breaking through both the 17-week moving average and the median line of the 14-month downtrend channel around 2650. Please note that my definition of the Golden Cross is different from the traditional Golden Cross of the 50-day and 200-day moving averages.

Indeed, with the Golden Cross being confirmed on October 8th, the SSECI has surged 10% and is fast approaching the target level of 3,000 at the upper boundary of the 14-month downtrend channel which probably will not be able to resist a fierce advance.

Three Peaks and the Domed House
A special chart pattern, “Three Peaks and the Domed House“, is emerging from China’s SSECI. With my modified version of George Lindsay’s basic model, the “Three Peaks and the Domed House” pattern can be divided into five major phases:
1) Three Peaks phase,
2) Basement phase,
3) First Floor phase,
4) Roof phase, and
5) Plunge phase.

This modified version, using “phase-counting”, is a macro approach to Lindsay’s basic model, and it is different from the classical micro approach using “number-counting” from 1 to 28. In the chart the SSECI is plotted as a red line against Lindsay’s idealized model in a black line.

From June of 2009 to April of 2010, the Shanghai index developed the “Three Peaks” phase. Then it had a sharp separating decline to reach the July 2010 low at 2320 and formed the “Basement” phase during this summer. Now it just started a rapid advance in order to build the “First Floor” of the Domed House.

Calibrated against Lindsay’s model:
a) the SSECI should reach the “First Floor” phase near 3300 with a 10% upward move from the present price by the end of this year
b) the target “Roof” phase of the Domed House is projected at 4200 representing an 81% upward measured move from the low of the “Basement” by the middle of next year.

Based on the above projection, the Chinese stock market should be in a strong bullish uptrend for the next six to nine months.

(Just last week Market Vectors China ETF (PEK) was launched by Van Eck Global amid claims that it is the first and only U.S. listed ETF designed to give investors exposure to China’s A-Shares market. Now that is impeccable timing!)

Conclusion
There you have it. The ascent of the price of gold to $1,500 is going to be VERY volatile over the next few months while the Chinese stock market is about take off in a major way.

Which will it be?  Gold or Chinese stocks?

*http://fx5186.wordpress.com/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
• Sign up to receive every article posted via Twitter, Facebook, RSS feed or our FREE Weekly Newsletter.
• What will it be – gold or Chinese stocks?