Wednesday 14Nov2012 - Stock Market Trading Analysis!

The following analysis is from Chris Rowe's Tuesday 14November newsletter.

'First I'll tell you why I'm bearish. Then I'll give you some context. Because it isn't a "black or white" situation. There are many different shades of gray.

I'm bearish because the NYSE BPI (as well as the Russell 2000 BPI and NASAQ BPI) have flipped to a new column of Os.

What does that mean? Well, first look at the chart below and notice how the columns change back and forth from O columns to X columns. The column on the far right is in Os. That's the new column that was added after Friday's stock market close.'

Click chart to enlarge. From JD Stochcharts.

'As I mentioned, there are times when some signals are more potent than others. I told you that not all column changes are created equal.

Overbought sell signals (column changes) are much more potent than regular sell signals.

Oversold buy signals (column changes) are much more potent than regular buy signals.

But all column changes should be respected.

Let's talk about the column change we've just witnessed...

Friday's column change is not that extra potent "overbought" sell signal that I just mentioned. But it's pretty close to being one. On a scale of 1 - 10 in terms of potency, I'd say it's a 7.

As you can see, the signal came after the market sold off pretty dramatically. The only way it can generate a signal is due to a strong market move. Most people have a hard time understanding that strong moves are often followed by even stronger moves in the same direction -- but the stronger move often comes after a "correction".'

In today's case, we got a strong downwards move. My stock account (Chris Rowe's)  is HALF in cash and HALF in a bearish position. I believe the stock market will gain some strength and give me the chance to get into the second half of my bearish position. So, in terms of "notional value," my account will be 100% bearish soon.

I think the S&P 500 (chart above) is likely to move up to the green lines seen above. The horizontal green line is around 1,400 - 1,405 on the S&P 500. The down diagonal green line obviously changes price with every day that passes.

Now, if my indicator (the NYSE BPI) turns around and puts in a new column of Xs again, it won't matter to me whether I am at a profit or a loss, I will have to exit my bearish positions and work myself into a bullish positions -- if I hadn't already done so prior to the column change. Small losses don't matter much to me. It's the big moves that really count.'