Tradewinds for February 5th

Yesterday saw a not surprising down day in the markets. Our mini-rally was getting overheated, so there was some therputic release of the the overbought pressure. You can see that our fast momentum graph has taken a down turn, but that our moderate and slow momentum indicators were unfazed by yesterday's action. This is healthy. The momentum indicators can go in different directions for a few days as the excess is worked off, when they all get back in unison (either up or down), then we have another good entry point.

Not surprisingly, a lot of the ETFs and stocks that I track also posted a down turn in the fast momentum and fell into the neutral category. Not a big deal, just means we sit on the sidelines for a day or too and see if the this downturn is just the "pause that refreshes" or is a reversal to a downward trend.

Overall the negative momemtum continues to burn off, but we still have strong long term winds in our face, so if you are long be cautious.

We saw a lot of the agriculture stocks move into our top 25 yesterday - POT, MOS, MON, TRA, MOO. I am also detecting a revival of the solar industry in the rise of CCC, WFR and FSLR. Biotech, BBH has made a nice move. And transports remain strong - IYT, CSX and GT.

Tradewinds for Monday February 4th

Last week we saw a continued reduction in the hurricane force winds that have been buffeting the market since the first of the year. This came much to chagrin of the doom sayers and secular bull aficionados. I can speculate why the market rose the way it did last week, but remember the mantra of "Don't Ask Why". We only care which way the wind is blowing now and for as long as we can reasonably look into the future - a few days to a couple of weeks at best. Remember when reading all those stories of doom that bad news sells papers, clicks on the Web and all sorts of advice on how to not lose your money. Well anyone that has been watching closely knows that while everyone is crying crocodile tears over the sub-prime mess and the collapse of housing, some smart people have been making a bunch of money as the financial sector and homebuilders have zoomed off their lows. I bet you a lot of those pundits of doom have been among those.

Okay, lets get on to the Tradewind forecast. The storminess has definitely begun to subside, but there are still dark clouds out there. All of the broad index still have significant headwinds, so caution is still the word. We are seeing more stocks and ETFs moving into calmer waters. Of the 80 securities that I track, 29 are either rated neutral or the favorable zone. Check out the graphs to the right. You see that moderate momentum is sky rocketing and the long term slow momentum has turned up nicely. The fast momentum gave a little head fake in the middle of the week, but is moving up nicely. Remember the first rule of momentum, a body in motion tends to stay in motion until something stops it.

The top rated stocks and ETFs, to no surprise see plenty of representation from financials and real estate. Also three of the broad market ETFs that I track, IWM (Russell 2000), MDY (Midcaps) and SPY (S&P 500) have joined the top tier list. Others in the top tier list are: XHB, RTH, IYR, XLF, IJR, SMH, CSX OI, ACAS, C. I am excited to see SMH on this list, because that just may mean that the techs are getting ready to catch fire.

My second tier of stocks and ETFs are as follows: GLW, EOI, GT DRYS, HERO, RIO, PCU, IYT, XLI EWJ, EFA, IGN XLK. I like seeing RIO and PCU on this list as it indicates a revival in the industrial metals. Once again, not something that you would expect if a big bad recession was coming.

I do not have any sell signals flashing for the securities that I track.

A note on my methodology. I use a combination of slow, moderate and fast momentum indicators. For this I use the True Strength Indicator (TSI), Fisher Transform, and Trix. There are others that you can use that would probably work just as well. The key is to look at momentum over multiple dimensions and timeframes (I look at daily and weekly momentum). I score the securities that I track and thats how I come up with these lists.

TradeWinds for January 31st

To continue with our analogy of the hurricane, the last several days has been the eye of the storm passing over the market. We saw nice reversal of the short term and long term momentum indicators. However the fast momentum indicator that I use is show that most of the ETFs and stocks have hit an exhaustion point and we will now see some downside movement. The key will be as we move into the backside of the market hurricane if we significantly reverse the momentum that we have been building up the last few trading sessions. My hunch is that we won't, but the market will tell us the truth.

There are some bright spots as we head into the next few days. Technology is one of them. Momentum is building for QQQQ, INTC, CSCO, GLW, RIMM, SMH, NVDA, XLK and they are not showing signs of near term exhaustion. They are are still facing negative long term momentum numbers, so be careful. I am also liking the Euro ETF, FXE and Utility ETF, XLU, both of which would make sense in a falling interest rate environment.

In the coming days I will be posting information about my methodology and the list of ETF and stocks that I track. Watch for that.

Tradewinds for Tuesday January 29th

Monday's market gave us the nice follow through to the upside days of last week to begin to solidify a new short term uptrend. Now before we too excited about that, lets remember that we still have hurricane force winds blowing in our face, but they are diminishing and more areas around the edges of the storm are starting to see some sunshine. To be real, of the 80 stocks and ETFs that I follow, 63 are in mild to severe long term downtrends. So caution is still the keyword. The short term bias is up, but don't get greedy out there.

Here are the ETFs and stocks that are sailing in calmer waters, and would be nice place to do some fishing: XHB, IYR, GLD, SLV, GDX, FXE, CSX, HERO, MOS, SLW, TRA, POT, CF.

Here are the ETFs and stocks that still have a ways to go, but can see some calm weather on the horizon: IYT, XLF, XLY, IJR, IWM, XLI, DIA, SMH, MDY, AKS, PCLN, GT, ACAS, BOOM, APH, C, DRYS, INTC, GLW.

I have down trend indicators for only three securities - Bonds, IEF where I have taken a short position, retail, RTH, which triggered a short term downtrend, but is still sailing out of the storm nicely, and CCC, a small cap stock.

Happy Sailing, and remember, Don't Ask Why.