Stock Market Trading System on 75% Buy Signal

By: Angelo_Campione

General Commentary: The system for the SPY is on a Buy signal 75%

The system continues to remain on the long side. It’s not easy being positioned on one side when the market is moving against that and from time to time this will happen.

We anticipated a week of consolidation and it was mostly what we got until Friday. No doubt that Friday’s move is likely to trigger a lot of stops.

Interestingly, while the move lower on Friday signaled the break of support, it might be just the catalyst to have the market resume its up move. Most people will be assuming that a new downtrend is beginning and that it’s time to cut out of longs and go short, these are the sort of conditions that the market loves to reverse on.

Obviously nothing is guaranteed when it comes to the markets but the probabilities favor a bounce very soon.
Lets see what we get...

SPX Chart - Much Bigger Picture

In this really big picture, we seem to be at a similar point to 2003. As long as the market can stay above the 20 month EMA (on a monthly basis), the new bull market scenario remains intact.

SPX Chart - Bigger Picture

Last week I drew a narrow trend channel which was broken to the downside this past week. However, as you can see from the chart, a wider trend channel is still in place. As long as the 1060 region can hold, this current channel could be the path forward.

SPX Chart - Shorter Picture

The shorter term shows the quick drop when support at 1085 gave way. We’re now at the next level of support, albeit minor. If we get a further drop, we could see some wild swings between here and 1040.

Notice the RSI approaching the oversold level, a bounce higher seems likely by mid week at the latest.
For the week ahead, support on the SPX is 1060 - 1070 and resistance is 1100 - 1110.

The VIX Picture

The VIX is interesting here, while the market closed at a lower point than the previous week, the VIX was relatively sedate.

This means one of two things, either there’s still a level of complacency, in which case, a local bottom has not been reached. Or, the participants suspect that Friday’s move lower was just some end of month re-balancing that will resolve to the upside this week.
I’m inclined to go with the latter.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Performance

We're using a starting capital of $5,000 and allocations are based on 25% of this or the remaining balance.

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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By Angelo Campione

Important Disclosure
Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
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