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.
The OEXA is used to find the “sweet spot” time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.
The chart below is current through the February 3rd 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:
The market is tradable.
OEXA200R remained well above 65% all week and closed at 86%.
Of the three secondary indicators:
- RSI is above 50 and positive.
- MACD has crossed and is positive.
- Slow STO is above 50 and is positive.
Conclusion:
The market is tradable, but this could be the last gasp before a serious correction beginning mid to late 2012. The S&P is above both its 140 year trend line and the trend line for the secular bear that began in 2000. In other words, the market is doubly top heavy.
If the technical indicators weren’t reason enough for a correction, take your pick of any number of other negative catalysts, the first of which will probably be Greece.
From U.K. Telegraph finance columnist Ambrose Evans-Pritchard:
| Another normal day at the Hellenic Statistical Authority. We learn that Greece’s manufacturing output contracted by 15.5% in December from a year earlier, industrial output fell 11.3% compared to minus 7.8% in November, unemployment jumped to 20.9% in November, up from 18.2% a month earlier. I have little further to add. This is what a death spiral looks like. |
In my opinion, this is what a lit bomb looks like. Every human being has their breaking point, when they finally cross over the thin line from being friendly neighbor Bob to the guy on CNN holed up in the clock tower with a sniper rifle. How much longer before enough Greeks cross that line and the Revolution begins? Forget all the “Please return to your cabins, an iceberg just means we have extra ice for cocktail hour” Euro-crat happy talk. Once the first of the PIIGS dominoes falls we’ll be sucked into the middle of a tornado.
Iran is the other wild card. An Israeli attack in the near future is as inevitable as a Greek fiasco. As an Israeli official put it, “There might be only a 10% chance of an Iranian nuclear attack on Israel someday, but Israel can’t take a 10% chance on 100% annihilation”.
What will the aftermath of these events look like? How are they going to affect investor confidence, the international economy and the stock market? Not in a good way, that we can be sure of.
In the meantime, OEXA200R remained strong all week at 86%. If and when it touches 65%, that will be the early warning signal to exit all long positions, sit on the sidelines with your cash and watch and wait for a bit. Until then, enjoy the party while it lasts!
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 F. 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., and also available on Amazon.com.
