QID - QLD TRENDS (fka )

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If we could get it on a chart to prove it works or at least give the signal in data form for a while then I'm all for it.

Don't get me wrong, I think this will work as a short term indicator, but the author wants us to believe it will work for an extended period of time.

I'm not willing to buy it and you should not be ready to buy into it yet either. The author says the market it TYPICALLY up after this indicator is tripped 2 weeks, 3 months, 6 months and a year later.

The trouble is exactly what I said it was which is that any swift and violent sell off can produce a market where 90% of the stocks are below the shortest term averages like a 10 day sma.

It takes a real bear market to get those numbers for stocks on the 50 and 200 day sma's. Then if you want confirmation of a true long term bottom you need to look at a lot of other indicators.

If you get a 90% downside day after a prolonged market downturn followed closely by a 90% upside day or two 80% upside days then that would be using one long term sign of a true market bottom. Anyway, like I said we do have a short term buy signal. We don't have anything more in my humble opinion.

http://www.the-investors-edge.com/sm_logic.php

THE DOW THEORY

Dow Theory is a system of market trend analysis developed by Charles H. Dow in the early 1900s and later refined by William Hamilton and Robert Rhea. The theory purports to identify and measure changes in important cyclical trends in stock prices on the basis of movements in the Dow Jones Industrial Average and the Dow Jones Transportation Average.

The stated criteria for Dow Theory signals include three basic elements. First, the Industrial Average and the Dow Jones Transportation Average must confirm one another. A signal by one of the averages but not the other is insufficient to yield a full-fledged Dow Theory signal.

Second, following a substantial market decline, a bull signal is established as follows: a rise by each of the averages to points substantially above their major lows; then a decline by each of the averages of some minimum length that does not penetrate their previous lows. Finally, each average must rebound from this second intermediate low and establish a new cyclical recovery high.

Third, following an extended market advance, a bear market is signaled in precisely the opposite manner: a decline by each of the averages to points substantially below their major highs; then an advance by each of the averages of some minimum magnitude that does not surpass their previously established highs. Finally, each average must decline from this second top to a new cyclical low.

JANUARY'S FIRST FIVE DAYS AN "EARLY WARNING SYSTEM"

Market action during the first five trading days of the month often serves as an excellent early warning system for the year as a whole. Early January gains since 1950 (excluding 1994) were matched by whole-year gains with just three war-related exceptions. Vietnam military spending delayed the start of 1966 bear market; cease fire imminence early in 1973 raised stocks temporarily; and Saddam Hussein turned 1990 into a bear. Nineteen Januarys got off to a bad start and nine of those ended on the downside. Investors pushing taxable gains into the New Year cause many bad starts following great bull years. Remember that five days is a brief span and some extraordinary event could sidetrack this indicator as it did on the fifth day of 1986 and 1998." Stock Trader's Almanac, 184 Central Ave., Old Tappan NJ 07675

THE JANUARY BAROMETER

"Since 1950, the January Barometer has predicted the annual major trend of the stock market with amazing accuracy. Based on whether Standard & Poor 500 Index is up or down in January, most years (excluding six flat years 1956, 1970, 1978, 1984, 1992, and 1994,) have in essence, followed suit. Of three significant errors 1966, 1968, and 1982, Vietnam affected the first two. However, there were no errors to odd years when new congresses convened. Bear markets began or continued when Januarys had a loss. The six flat years switched directions in the year's final months." From Stock Trader's Almanac.

90% DOWNSIDE DAYS

Through the years, investors have searched for ways to identify important market bottoms. And the "selling climax" has been one of the major focuses of that search. A "selling climax" is generally defined as that final capitulation of investors near a major market bottom, in which stocks are "dumped" with abandon. The selling is no longer on perceived values, but rather simply on the desire to get rid of stocks. Once everyone who wanted to sell stocks has sold, there is no one left to drive prices lower. And, the resulting deep discounts in equity prices produce the bargains that stimulate the beginning of the next bull market.

According to analysis by Lowry's Reports Inc., 1201 U.S. Highway One, Ste. 250, North Palm Beach, Florida 33408, all periods of significant market decline since 1933 have contained one, and usually more than one, day of panic selling on which Downside Volume equals 90% or more of the total of Upside Volume plus Downside Volume, AND on which Points Lost equals 90% or more of the total Points Gained plus Points Lost.

Based on Lowry's past experience, 90% Downside Days do not occur at or near the ultimate bottom of a major market decline. Multiple 90% Downside Days commonly occur spread out throughout the course of important downtrends, with the last one of the series occurring near the market bottom.

Market declines containing two or more 90% Downside Days often generate a series of 90% Downside Days, often spread apart by as much as 30 trading days. Therefore, according to Lowry's, it should not be assumed that an investor can ride out such a decline. The 1974 decline contained ten 90% Downside Days before the final low.

The record shows, according to Lowry's, that declines containing two or more 90% Downside Days usually persist, on a trend basis, until a strong, panic buying day occurs on which Upside Volume equals 90% or more of the sum of Points Gained PLUS Points Lost. These two combined events - 90% Downside Days and a 90% Upside Day - represent a complete selling climax.

Back-to-back 80% Upside Days have occurred instead of a single 90% Upside Day to signal the completion of the selling climax. Back-to-back 80% Upside Days are relatively rare.

MONTHLY PERFORMANCE RANKINGS- Compiled by Stock Trader's Almanac


Standard & Poor Dow Jones Industrials Nasdaq Composite
1 December 1 April 1 January
2 January 2 December 2 December
3 November 3 January 3 June
4 April 4 November 4 April
5 July 5 July 5 November
6 March 6 March 6 February
7 October 7 October 7 May
8 June 8 February 8 August
9 May 9 June 9 July
10 August 10 August 10 March
11 February 11 May 11 September
12 September 12 September 12 October


Note that the year can be divided into two halves; the best six months from November through April and the worst six months from May through October.

MONTHLY TRENDS - From Stock Trader's Almanac

January: "Since 1937 the January Barometer has a perfect record predicting market direction in odd-numbered years. Every down January on the S&P 500 since 1950, without exception, preceded a new or bear market, or a flat market."

February: "Sharp January moves usually correct or consolidate in February."

March: "In like a lion, out like a lamb." The market tends to be positive in the first half of March and negative in the last half.

April: "April has been the best Dow month (since 1950)." "First half of the month tends to do better than second half despite April 15th tax day." "Rarely a dangerous month except in big bear markets." "Best six months of the year end with April."

May: "Worst six months of the year begin with May."

June: "The 'summer rally' in most years is the weakest rally of all four seasons." "June ranks near the bottom on the Dow along with May, August, and September since 1950, but has performed better in the past 15 years."

July: "July is the best month of the third quarter." "Can be unpleasant in a bear market." "Start of NASDAQ's worst four months of the year."

August: "Has become the worst month in the past 15 years, though up 11.7% on NASDAQ in 2000."

September: "Biggest percent loser on the S&P 500 and Dow in (since 1950)."

October: "Known as the jinx month because of crashes in 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979 and Friday the 13th in 1989." "Worst six months of the year ends with October." "Worst month on NASDAQ."

November: "Among the top three S&P 500 months of the year along with December and January. Also start of the 'best six months' strategy."

December: "No large Dow loss since 1980, minus 3.0%, two others were 1957 and 1968." "Second best month on NASDAQ."

MARKET TRENDS FOLLOWING SURPRISING EVENTS, by Lowry's Reports, Inc., 1201 U.S. Highway One, Suite250, North Palm Beach, Florida, 33408.

There have been a number of crises in the past that resulted in extreme volatility in stock prices and extreme anxiety among investors, such as the 1973 Oil Embargo, the Nixon resignation, the Bunker Hill Silver Crisis, or the 1987 Crash. These are not included below since they were primarily financial crises and did not rise to the level of tragedies.

March 4, 1933: The Bank Holiday: On that date, all Nationally chartered banks were closed by Government edict, as a means of stifling a potential "run on the banks". The banks remained closed through April 14, 1933. This event certainly had the element of magnitude. And, it must have seemed like a tragedy of some proportion for those without financial resources. I am not sure if there was an element of surprise but I assume there was. The market had been in a clearly established bear market and was already deeply oversold. The Dow Jones Industrial Average had actually bottomed near its 48 level on February 28, 1933, and had begun to turn sharply higher two days before the bank closings. When the banks re-opened the Dow resumed its uptrend for a period of four months, rising to the 108 level on July 18, 1933. After that, the Dow remained in a very erratic trading range until March 1935. Thus, the rally following the Bank Holiday resulted in only a temporary reprieve of the pre-existing primary market decline.

March 12, 1940: The Invasion of France: This shocking event triggered one of the most dramatic stock market declines in history. Over a period of just ten days, the Dow Jones Industrial Average dropped from 148 to 112; 24.3%. That would be equivalent of a drop in the Dow from 10,000 to 7,600 in ten days. While there was no domestic tragedy, this event made it clear that another World War was inevitable. The Dow had been in a narrow, sideways trading range for about eight months in advance of the invasion of France. For the general public, there was a strong element of surprise at the initial news releases, but it took several weeks for the full impact of the news to be absorbed. However, professional investors must have had access to critical information, since selling began to rise sharply in early April - a full month before the news announcement. Panic selling occurred on May 13th, 14th, 17th and 21st. Panic selling occurred again on May 28th and on June 10th and then the Dow staged a dramatic rally on June 11th and 12th. This buying enthusiasm was the start of a new uptrend that lasted about five months into early November 1940.

December 7, 1941: The Attack on Pearl Harbor: This event is probably most similar to the tragedy on September 11, 2001, in terms of surprise, the terrible loss of life, and the magnitude of physical destruction. The Dow Jones Industrial Average had been declining since May 1940. An intermediate peak was reached in July 1941, and selling began to quickly intensify. Panic selling occurred on August 9th, September 25th, October 10th and 16th, and November 12th - all in advance of the attack. The actual attack occurred on Sunday, December 7th. The Dow opened with back-to-back days of panic selling on Monday, December 8th and Tuesday the 9th. The Dow began to base at that point, as the worst was known, and the panic began to subside. After several weeks of sideways trending, panic selling occurred on December 30, 1941. But, after just six days of rally, buying enthusiasm began to fade again, pushing the Dow down to new lows in late April 1942. While general lore says that crises are always followed by vigorous uptrends, the Pearl Harbor crisis is a notable exception. Possibly, a distinction must be made between cases in which the crisis quickly passes and those with longer-term implications. More importantly, the Pearl Harbor crisis shows that a close observation of the forces of buying and selling is far more important than relying on market lore.

October 22, 1962: The Cuban Missile Crisis: This critical event had a strong element of surprise when the initial news announcements were made that nuclear missile bases had been discovered on Cuba. But, the events continued to unfold over a period of seven days before the crisis was finally averted. There was no actual tragedy, but the fear was that missiles launched from less than 100 miles from our mainland could obliterate large parts of the U.S. The Dow Jones Industrial Average was just beginning to recover from a major market decline from March through June 1962, and investors were still nervous about the future trend of the stock market. Buyers began to fade in mid-August. But, something began to spook investors in late September, triggering back-to-back panic selling days on Friday, September 21st and Monday, the 24th. Possibly some investors had inside information. History records that the missiles were first spotted but not announced by the CIA on October 14th. Another day of panic selling occurred on October 19th, although JFK did not make his public announcement on TV until October 22nd. The following day, October 23rd, began with relatively heavy selling but began to stabilize late in the day. But, the real panic selling had already been exhausted during September and early October. Thus, there was not enough selling to drive prices lower. Enthusiastic buying occurred on October 29th, just four days after the bottom, showing that investors were bargain shopping. Because the Cuban Missile Crisis was actually a temporary setback in a new bull market that had just begun in June 1962, the market continued to rally for at least another 30 months to May 1965.

November 22, 1963: The Assassination of President Kennedy: The Kennedy Assassination had the element of surprise and shock. The magnitude of the crisis was limited, although many people were in fear that the attack on the President might mark the start of an attack on the Nation. The bull market appeared to be strong during the latter half of 1963 but selling began to rise in early September, due to some profit-taking and continued to accelerate into late November. The news of President Kennedy's assassination in Dallas on Friday, November 22nd, triggered panic selling. When President Johnson was publicly sworn into office, and it appeared that the crisis was over, investor psychology quickly shifted and the buyers were enthusiastic when the market reopened on Tuesday, November 26th. The uptrend continued for at least another 17 months into May 1965.

September 11, 2001: The World Trade Center/Pentagon Attack: During the months leading up to the WTC/Pentagon tragedy, the Dow Jones Industrial Average had been weakening but had not exhibited the kind of panic selling typically found in advance of major market bottoms. The acceleration of the decline since May 2001, did not have one day of panic selling, suggesting that investors were still relatively complacent, or unwilling to recognize their losses. Virtually all declines of 20% or more in the major price indexes have not ended until investors have panicked. The market reopened on September 21st and the Dow began a rally on investor bargain shopping that resulted in a rally through January 4, 2002 and a gain of 24.5% in the Dow.