With all the
signs indicating to us a near term top was approaching, Invested Central
began to communicate to our members the importance of taking defensive
action to limit risk and preserve capital, two of our guiding
principles that we stress to members as part of our goal to make you a
better trader!
Below
are just a few of the notices we sent out in the last few weeks of January.
Click on each date to see the message sent to our subscribers and members,
then sign up for our FREE newsletter, marketPULSE, or learn more about
our subscription options.
Also, check out this video we produced for our members showing how we
calculate the Relative Complacency/Pessimism Ratio, showing the correlation between
individual traders being either too complacent (topping signal) or too
pessimistic (bottoming signal).
marketPLUS
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Caution is quickly becoming the word as we approach the second week of
trading in 2010 and there are reasons for taking a more cautious approach...
We have a proprietary method of evaluating the sentiment in the stock market based on the relationship between a short-term moving average and a long-term moving average of the equity only put call ratio. When these two moving averages diverge significantly, the major indices generally are approaching key pivot points. By comparing these two moving averages, we receive a clear signal of how traders are approaching the current market relative to how they've approached the market in the recent past.
The last signal that was provided to us came in very early November, as the market was selling off fairly hard. The short-term moving average of the equity only put call ratio was rising rapidly, a sign that traders were growing increasingly pessimistic. That marked a bottom and the market has rallied nicely ever since.
The tide has now turned and our "relative complacency" ratio has reached its highest level since market peaks in August and September 2009. While those reversals to the downside were only temporary, they did successfully warn members to be careful in the near-term. That caution proved to be quite valuable to the trader. We have similar warning signs out now.
Premier Member Market Chatter - January 11th, 2010
Red flags are being raised and the landscape is growing more and
more dangerous from a bulls' perspective. The equity only put
call ratio is .44 as of 10:30am EST, a very low level. This is
on top of the .49 that printed on Friday and the 5 day moving
average of .52. The message that this sends is that the bullish
boat is nearing or has reached capacity and could sink at any
time. Is it a guarantee? Of course not. There's no such thing
in the stock market. But is it very risky to be long the market
at the moment? NO QUESTION ABOUT IT!!
One of our missions at Invested Central is to identify the mine
fields as we approach them. Well, they're straight ahead. If
you choose to continue on the long side and attempt to dodge
them, that's your call. We would choose safety and capital
preservation with the downside meaning that you might miss out
on an up move knowing that the risks are great.
Premier Member Premarket Update- January 14th, 2010
Complacency remains an issue as does options expiration. Options expire tomorrow and that will lead to more volume and, potentially, more volatility. We still believe that in the short-term,
it's prudent to back off and trade fewer shares and less often to avoid the pain that can accompany whipsaw action
during options expiration week. The fact that the overall market remains so complacent simply adds to our uneasiness.
We're not seeing the market in any different light this week than we did a week ago.
Clouds are on the horizon and more selling could be on the way near-term. We don't see anything that would suggest the potential short-term weakness will compound into anything more severe, but that is always a possibility. Let's face the facts. The NASDAQ hit 2326.28 last week, which represents almost a doubling of the 1265 low that printed on March 9, 2009. And at that 2326.28 level, the NASDAQ has climbed nearly 15% just in the last two and a half months. A pullback at this stage of the advance would not be a horrible thing technically.
In the marketREWIND section of this week's report, we noted the outperformance last week by the more defensive sectors. That is never a good thing because it sends a message that investors and traders do not want to take the additional risks associated with owning more aggressive sectors. While one week doesn't make a trend, it does make us pause for a minute to assess the bearish possibilities. We already know the market is somewhat complacent, believing that the current uptrend will go on forever. As we highlighted in last week's marketJOURNAL section for Plus and Premier members, this complacency is often times associated with short-term market tops and is extremely valuable knowledge for the short-term or swing trader.
If you consider yourself something other than a buy-and-hold investor, you might consider checking out our
Plus membership, at a minimum.
Premier Member Premarket Update- January 19th, 2010
There are no technical signs at the moment indicating that buyers are ready to jump in full speed ahead here, but instead, we continue to sense a more cautious attitude.
Premier Member Premarket Update- January 21st, 2010
All of this to say that
it is prudent to be less aggressive for the moment, because there's too much back and forth, which is almost never good for the pocket book.
Premier Member Premarket Update- January 22nd, 2010
Certainly,
the large volume that accompanied yesterday's selling has got to at least send a signal to the bulls that we may have seen a near term top. The question now becomes, how low might we go? We may be in a position to answer that question more easily in a day or two. So, we'll remain on the sidelines unless we see something that suggests that we get more aggressive.
marketSNAPSHOT
Caution is quickly becoming the word as we approach the second week of
trading in 2010 and there are reasons for taking a more cautious approach...