Time for a Pause

In the December 13th newsletter I suggested the S&P 500 would likely form a cycle bottom, saying “The markets move in cycles. They always have, it's human nature. Looking at the S&P 500's chart, over just about any time period I pick, I see a roughly 1-1/2 to 2 month cycle. Sometimes the cycle lows occur 1 month apart, sometimes 2-1/2 months apart, sometimes it is hard to identify a low, but overall, short-term cycle lows average a little less than 2 months apart. Using that reasoning, and the Stochastics indicator to help confirm actual and likely lows, I feel that nothing is unusual and I can expect another short-term low to be set within the next week or two.

The date I wrote that turned out to be a short-term low. In the two weeks since then, the markets have rebounded 3.9% off that low.

If the S&P 500 continues its recent cycling action, we can expect a short-term high sometime soon, and a short-term low in mid-January to mid-February, which would be in the Q1 earnings release period.

Cycle analysis is not an exact science. I do not throw Fourier analysis at it, I do not use artificial intelligence, I do not apply proprietary algorithms. If anything, the most useful tool I've found is to just stand up and view a chart from across the room – if there are cycles on a chart, they stand out when you are standing away from the screen.

This just comes down to way to classify the probability of trade success in the near future. Since we are two weeks and 3.9% off a clear short-term low in mid-December, the odds favor a short-term high in the near future, followed by another short-term low in 3-6 weeks. New long positions in stocks or new bullish option positions right now will have a lower probability of working than if entered just as the stock or the markets are coming off a short-term low. The stock, or overall market, may not log much additional upside, even if it is several weeks before a short-term high is set.

If you have existing stock positions, this may be a good time to write At-The-Money or In-The-Money January calls against if for some income and to lower the cost basis of the stock. If the market does start pulling back within the next few weeks, you may be able to capture all of the option premium by the time the January options expire (3rd Friday of January).

For the next couple of weeks, watch the market for any change from its recent exhuberance. When it starts, take profits, trim the weaker positions, and consider adding some downside protection (puts or inverse market ETFs).

Incidentally, the VIX is back down at one of the lowest levels of the past 5 years. This suggests there is plenty of optimism in the market and little fear. That condition is typically resolved with a market pullback.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, including the answer to the above question, type in www.markettamer.com/seasonal-forecaster

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.