Best Stock Market Indicator Ever: Weekly Update

By John F. Carlucci
April 12, 2014

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The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money.

The weekly charts below are current through the week's close.

Weekly OEXA200R vs. S&P Comparison

Interpretation:

According to this system, the market is now Un-Tradable. The OEXA200R ended the week at 72%, down from 90% last weekend.

Of the three secondary indicators:

  • RSI is NEGATIVE (below 50).
  • MACD is NEGATIVE (black line below red).
  • Slow STO is NEGATIVE (black line below red).

Commentary

Is the Bull finally over? That's what a lot of traders are beginning to ask themselves right now. Two Bull / Bear indicators that I keep an eye on are the bank index (represented by $BKX) and NYSE Margin Debt, both shown below.

When people start missing payments on car loans and mortgages it indicates a serious underlying problem with the economy. Twice in the recent past, Feb. 5, 2007 and Jan. 31, 2011, a drop by the banks preceded a significant drop in the S&P by several months. The same occurred with Margin Debt in March 2000 and July 2007 (the caveat here is that Margin Debt data is always a month old).

While no single indicator is flawless, if and when these two turn negative (particularly a significant reversal in Margin Debt) my bear antennae will go on full alert. So far they remain intact, meaning we're probably just going through a routine correction right now with the Bull to resume thereafter.

 

 

Background on How I Use This Indicator

The OEXA200R is a valuable metric used to accurately assess the state of the market in order to make profitable trading decisions. That is, whether we are in a bull, a bear or transitioning from one to the other, as well as market volatility and risk within each of those situations. Historically, it has also given traders a clear early warning signal of impending serious market downturns and later safe re-entry points. While not intended as a day trading tool per se it can certainly be used as background information by high frequency traders. Simply put, the OEXA200R gives traders the ability to identify the most opportune conditions within which to execute their various long, short or hold strategies.

Following a major market correction, the conditions for safe re-entry are when:

a) Daily $OEXA200R rises above 65% (I follow the Daily but do not publish the chart here)
And two of the following three also occur:
b) Weekly RSI rises over 50
c) Weekly MACD black line rises above red line
d) Weekly Slow STO black line rises above red line

Without the solid foundational support of two out of three Weekly secondary indicators it is unsafe to trade even if Daily OEXA200R edges above the 65% line. The market is considered safely tradable as long as Daily OEXA200R remains above 65% and two Weekly secondary indicators remain positive. Volatility and risk for long traders are relatively low. The trend is on their side.

Conversely, when Daily OEXA200R drops to 65% and / or two out of three Weekly secondary indicators turn negative it is taken as the conservative signal to exit all long positions, even if Daily OEXA is above 65%. Volatility and risk increase substantially. In the past, this has often been a "tipping point" condition presaging a substantial market drop.

For simplicity sake, just look for the notice in the "Interpretation" section above as to whether the market is either "Tradable" or "Un-tradable".

 

(c) John F. Carlucci

 

 

 

 

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