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 27th 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 77% (first went >65% on Jan. 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, enjoy it while it lasts.
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:
All eyes remain on our wheezing, conjoined economic twin Europe. The Euro zone seems to have reached an historic fork with two clear paths leading in completely opposite directions. On the one hand, there?s Angela Merkel?s vision of Euro-cratic Utopia, as laid out in Davos this week:
“My concept is one of political union. We need to become incrementally closer and closer, in all policy areas,” the chancellor said. “Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government. And finally, the supreme court will be the European court of justice that would enforce controls for national budgets, for example, and much more besides. We will only be able to strengthen our common currency if we co-ordinate our policies more closely and are prepared to gradually give up more powers to the EU.”
Of course, the notion of gaining the prior consent of the 500 million European voters is nowhere to be found within this gaseous manifesto.
The other scenario is that the same rarified financial and political caste whose carefully laid plans have brought the Continent to the brink of catastrophe for the third time in 100 years will not be able to un-paint themselves out of the corner as Frau Merkel envisions. A disorganized, barely controlled disintegration of the Euro zone and euro, dragging us along for the ride. Expect the panicked 3 AM call from Europe to our Wall Street ? Washington Brahmins, followed by the usual suspects condescendingly explaining to the American taxpayer why we must bail out Europe “for our own good”.
The bottom line is that Europe, and the rest of the world for that matter, are run by people no smarter than you or I. That sobering fact gives insight into which way things are likely to break in 2012.
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.
