11. February 2016 19:58
Just to follow on from my note earlier this week. The markets continue to be ugly, but many of my students continue to thrive in spite of the conditions - you'll see that in the video.
This is a bearish market, but it's a "confused" bearish market. The easy part is that the indices are there is a natural flight to gold as we've spoken about in webinars recently. Remember, gold and the S&P are inversely correlated, so gold is currently flavour of the month, and you'll see in the video how easy the OVI chart of GLD has been.
See how this compares with the chart of the DIA:
The confusing part is that there are plenty of stocks like CSCO which have spiked up while other large caps - especially the financial sector - has been trashed.
P1 will save you ... P2 will change your life!
Again, I want to emphasise the importance of protecting your profits in this type of market.
Several stocks have trended down beautifully, GLD has trended up beautifully, and catching those trends that's the ultimate. But even if you're just taking P1 nibbles that's great too in the context of this hostile market.
You stay in the game by using my P1 so you're in it long enough to experience P2 when the market decides to be more co-operative.
That is the essence of trading. The markets will not always co-operate. In my particular trading niche, we have been right far more than we've been wrong, but my trading plan has always protected us. In challenging market conditions like this you need a trading plan that will keep you in the game. P1 and P2 achieve far more than that!
Listening to the Markets
Overwhelmingly the OVI Dashboard shows a bearish backdrop to the market with many more downtrending stocks.
(Remember, the Dashboard will be significantly upgraded very soon - I can't wait for that!)
However, the OVI Sentiment Indicator has been more marginal, perversely even showing some bullishness as you can see from arrows in the OVIsi chart below, where the blue line exceeds the red line. As you can see, the distance between the two lines is very tight. Remember the OVIsi is a long term indicator which must be supported by market action. Clearly right now, market action is bearish, so in this situation you cannot take a contrarian bullish market signal. And as you can see, the lines are very close together.
Those two lines are what drive the OVIsi colour (green/amber/red). Historically this has served us very well, easily outperforming the index benchmarks, but we continue to research a more sensitive interpretation of the two lines. This must be achieved without curve fitting or over-optimizing. In the meantime stick to the mantra of Trade What You See!
What we see right now is a challenging bearish market, where you must use my P1 and P2 trading plan to stay in the game and thrive. That also applies to if you're trading the rare bullish issues like GLD.
All the best