1/27/2014 Comments

Others have posted about the weak market action last week. For the record the Market School model went to zero exposure on Friday. I don't automatically sell everything in my portfolio when this happens but will keep those positions that are still acting okay. This is to protect from what has been happening over the last year: small pullback and rapid recovery. Some damage has been done to leading stocks and with the zero exposure I don't intend to purchase any positions over the next few days unless really strong market action develops. Probably the earliest sign of a recovering market would be NASDAQ intra day lows to move above the 21-day exponential moving average (B3 buy signal in Market School). I have posted a new watch list in case the market recovers.

The rally that began last December 2013 has lasted longer then most rallies in history. The bull market from 2009 has also lasted longer than most bull markets. So, I have been expecting major topping action at any time. That being said, most of the tools I use to anticipating a topping market are broken in the current QE market environment. So I am just along for the ride like everyone else.

On the short side I have entered CTRX. Most short positions over the last year have not worked. It is still hovering around the price I shorted as it bumped into overhead resistance at the 200-day. I am not excited about either side of the market and note that we will have a Fed meeting this week.

Some may have noted that I have a position in AEM, a gold miner. This is not a CANSLIM pick but an attempt to catch a possibly bottoming gold miner market. I chose AEM not based on fundamentals but instead the orderly base building exhibited while carving out a possible long-term bottom. My method for buying these follows this process:.

1. Wait until we see a weekly buy signal on the gold Coppock chart and monitor the monthly Coppock chart for signs of a pending buy signal. Freestockcharts.com has a Coppock indicator, we got a weekly buy signal the week ending 1/17/2014. A monthly indicator moves very slowly and is usually late to signal. A buy signal can be anticipated however. Note that we have not seen a Monthly Coppock buy signal on gold since 2001 and we are in position for one either this month or next. We may be witnessing a major gold bottom. Fake outs of course can occur.

2. Once the weekly Coppock issues a buy signal (closes up more than one point after the curve establishes a bottom in the negative half plane) I can start to look for positions.

3. At the bottom of the gold market most fundamentals are trashed so I look for the stocks in the sector that are liquid and behaving well. I found AEM through this process and bought it as it recovered the 50-day with a pocket pivot on 1/10/14. A gold ETF could have been selected in this same way.

AEM is up 9% from my buy point and thus possibly overbought, It is trading near its upper boundary. I will wait for gold to pull back before attempting additional positions.