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 20 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. This is the earliest and most sensitive signal.
Interpretation:
OEXA200R remained well above 65% all week and closed at 75% (first went >65% on January 6).
Of the three secondary indicators:
- RSI is above 50 and positive (first went >50 on Jan. 6).
- MACD has not yet crossed.
- Slow STO is above 50 and positive (first went >50 on Jan. 6).
Conclusion:
The market is tradable.
However, traders must stay on their toes. It is too early to tell whether the current situation indicated on the OEXA200R monthly chart is comparable to the actual recovery of October 2010 or the temporary "head fake" of September 2007.
As with any indicator, you must place OEXA200R within the broader context. Please keep the following Commentary in mind.
Commentary:
First, the bad news.
We've all been carefully following events in Europe and, simply put, it's 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 a financial avalanche. Is there another Lehman hiding in that Box? We simply don't know. Either way, the U.S. is conjoined to Europe as part of the largest financial and business entity on earth so its problems cannot be ignored.
The encouraging news on the U.S. economy is tentative, at best. The housing market and unemployment might be off life support but are still far from healthy. As discussed in last week's Commentary, the charts say we're also likely due for a nasty cyclical bear correction.
Now, the good news.
Probably because of the above, we're hearing the first serious, specific talk about QE3. Not that it would be a solution to our economic problems; everyone knows QE is just a temporary "sugar buzz" that will leave us right back where we started once it wears off. But if it gives us traders another 10 or 11 months of bull market like QE2, that's still real money in our pockets. Look for an announcement by the Fed soon.
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
John Carlucci is a regular contributor to Advisor Perspectives and the author of "Ashes to Riches: How to Profit Spectacularly during the Economic Collapse of 2012 to 2022", published by Endeavour Press Ltd., also available on Amazon Kindle.
