Courtesy of Doug Short.
The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com that can be used to forecast conservative entry and exit points for the stock market.
See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.
The chart below is current through the January 13 close.
After a major S&P correction, the conditions for safe re-entry into the market are when:
a) $OEXA200R rises above 65%
And two of the following three also occur:
b) RSI rises over 50
c) MACD cross (black line rises above red line)
d) Slow STO (black line) rises over 50
Interpretation:
OEXA200R remained encouragingly above 65% all week and ended at 69%. Of the three secondary indicators:
- RSI is above 50 and positive.
- MACD has not yet crossed into positive territory.
- Slow STO is above 50 and positive.
Conclusion:
The market has become tradable. However, traders must stay on their toes and keep the following Commentary in mind.
Commentary:
All eyes remain on Europe. Simply put, it is a Pandora's Box of completely unknown proportions. Europe could muddle through. Or, problems could already be at such a saturation point that a single unfortunate event could be the trigger for another financial avalanche. We simply don't know. What we do know is:
- There is more than 457 billion euros of Euro zone government debt due to be repaid in the first quarter of 2012. Can Europe withstand that stress?
- The euro continues its downward trajectory against other currencies.
- Sovereign credit rating downgrades occurred late Friday. Greece and her creditors are eyeball-to-eyeball.
- No one has the slightest idea what the derivative exposure of European banks is nor the extent of the bail outs they will most likely need.
- A regional recession seems a foregone conclusion, as does the unraveling of the Euro zone and euro in some form, relatively controlled or not.
Note: Stockcharts.com offers free access to the $OEXA200R indicator on a daily and weekly basis. The monthly view requires a subscription.
(c) John F. Carlucci
