Here’s what impacts you in November

Positive —

My Watch List (barely positive) — The relative size of my watch list
frequently acts as a barometer for the health of the market. An expanding watch
list indicates more and more quality stocks are completing basing patterns and
nearing possible breakout levels — a bullish sign. A shrinking watch list means
that potential leadership is narrowing and less opportunities exist — a bearish
indication. After shrinking for four weeks in a row I noticed a surprising turn
this weekend when conducting my research. Although it’s too early to see whether
this one week is an anomaly, this is the first sign I’ve had that a rally could
have some strength behind it.

Sentiment (also barely positive) — While our short-term sentiment models
are beginning to show some excessive optimism, our longer-term models are
looking more constructive. Sentiment is a contrary indicator, so fear and
excessive bearishness are actually a good thing. Last week we approached levels
of bearishness on some indicators that would indicate a bottom could be near (or
already formed). Another strong move down could put these indicators over the
top and create a positive environment for the market to rally.

Neutral —

New Highs vs. New Lows — While readings have been fairly strong for both
new highs and new lows, neither one has dominated. Rather than showing evidence
of strong breadth either up or down, the market remains split. The positive
about this situation is that should the market establish a trend in one
direction or the other there should be ample opportunities to take advantage of
it.

UUWNHI (Unnoficial, Unscientific, Working/Not Working Hanna Indicator) —
Many times our working/not working indicator will give us not only an indication
of the kinds of trades that are providing the best profit opportunities, but
also the trend of the market. Action has been so choppy that is has made trend
trading incredibly difficult recently. Nearly every strong move has been met by
an even stronger reversal. Both breakouts and trend-continuation pullback
entries have seen high failure rates. What have been working are reversal
methods that depend on stretched conditions. Until the market stops whipsawing
so violently and begins to establish a trend, trend-following strategies could
remain treacherous.

Accumulation/Distribution — Price and volume action remain inconsistent.
After putting in a strong follow-through day on 10-19, distribution was evident
last Tuesday and Wednesday. While Friday saw a nice rise in prices, NYSE volume
actually fell. Today showed institutional accumulation across the board as
prices rose on strong volume. We’ll need to see more action like today’s coupled
with low-volume pullbacks for this rally to have a chance.

Negative —

Foreign Markets — During August and September many foreign markets led the
US and made strong up-moves. In October most of the areas that had previously
acted so well failed to hold up and reversed very hard. A few notable exceptions
were Japan and Switzerland, which actually held up fairly well.

Wild Cards to watch —

Tomorrow’s Fed meeting – The market reaction could be significant.

End of month mark up? — We noted on Wednesday that institutions tend to mark up
prices towards the end of the month, and that this positive bias can be even
stronger in October since it is year-end for many mutual funds. If the move the
last two days was largely due to this artificial propping up, the market may
topple right back over in the next few days.

The SOX (Semiconductors — not White Sox) — As noted last week, the
semiconductors had been showing weakness relative to the rest of the market.
Today they bounced up over 2% and up over 5% from Friday’s intraday lows. It is
too early to tell if this is the beginning of a strong move or just an oversold
bounce which is doomed to fail. The answer will be key for the Nasdaq as well as
the rest of the market.

Overall we’ve had a nice bounce the last two days, but it is still too early to
get excited. The next week or so could be telling.

Happy Halloween and best of luck with your trading,

robhanna@comcast.net

For those who may be looking to expand their
knowledge beyond just market timing, my
Hanna ETF Money Flow System utilizes the VIX in generating trading
signals for spread trades.

Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.