We look at a common set of technical and economic factors when deciding to trade long, short, or stand aside. Like a military Scout sent out to gather information, technical and economic indicators can provide valuable information to a trader or investor. In our trading we review these indicators on a daily basis and out of that daily analysis came the idea for Stock Market Scout (SMS).
As a philosophy we (MTR Investors Group) consider ourselves traders not buy and hold investors. In other words we may trade a stock and hold it for a day or longer to make a profit, or sell puts or covered calls when we identify an opportunity. We are not day traders. SMS was developed primarily to assist in trading for end of day analysis.
Stock Market Scout uses a wide range of stocks for analysis and provides quick and easy access to key technical and economic indicators to assist in making better trading decisions. These indicators are placed in a dashboard view and combined to create a composite indicator with Market UP, DOWN, or NEUTRAL signals. In order to make the timing model usable the signals are plotted on the Spiders (SPY) ETF. In addition the model can be plotting on both the SPY and QQQ ETF at the same time for comparison.
I. Stock Market Scout Signals: Each Scout Signal (Green=UP, Red=DOWN, Yellow=NEUTRAL) consists of a number from 0 to 8. Zero being the lowest (bearish) and 8 being the highest (bullish). Tick marks that range from one tick to three ticks, or + or ++ or +++ for each ranking (red=down, yellow=neutral, green=up).
- 0 to 2: Red / Down
- 3 to 5: Yellow / Neutral
- 6 to 8: Green / Up
These "tick marks" indicate the direction of the signal. For example if the signal is Red and there is one tick (+) it would mean the signal is at the lowest setting or in the case of red the most bearish. As the signal moves up from + to ++ or +++ it means the signal is moving up towards yellow or neutral/hold. When the signal is green with three ticks (+++) this would indicate the strongest UP signal. A green signal with one tick (+) may mean the signal is starting to move up, or may move down into neutral/hold territory.
- How do I use Stock Market Scout? Stock Market Scout was developed to identify favorable times to be LONG or SHORT stocks, or on the sidelines. Green=Look for long trades, Red=Look for short trades, Yellow (++) cash.
- How do I find stocks to trade? We are working on trading signals and will cover how we pick stocks to trade. We are break out traders, using classical patterns for entry and exit points. We will cover that in a future post.
- What is the performance? We will post real-time end of day performance for the model and this should be coming down the road soon.
II. Stock Market Scout Dashboard: The SMS dashboard consists of a grid with the SMS closing prices, a daily market commentary on each indicator, and green/yellow/red indicator for each value tracked.
1. Select FROM and TO dates to show SMS values from 1999 forward
2. Check "Show All Criteria" to show all SMS indicators that are tracked and make up the composite signal
3. Click "Hide Dashboard" to show the SMS signals plotted on the QQQ chart without the dashboard
4. Click the select icon to the left of the QQQ closing date in the grid to show the market commentary and green/yellow/red indicators for that date.
III. Stock Market Scout Indicators: The SMS signal is a composite of many technical and economic indicators. The signals are not perfect, no trading system can boast a perfect track record. This is why SMS is setup to allow traders to take a deeper dive by reviewing at all indicators that make up the composite signal.
Indicators that make up the SMS Signal:
1. Intermediate trend: Closing price a group of stocks make up the SMS Index this is related to the intermediate 50 day trend
2. Long term trend: Closing price related to the long term 200 day trend
3. Wilder's RSI: We take a different view of RSI. Instead of the standard overbought and oversold levels we look at BUY and SELL Zones. Example: RSI greater than 51 is a Buy Zone, RSI less than 48 Sell Zone, between is hold/neutral.
4. Percentage of stocks over the 50 day moving average: When 50 to 72% of stocks are over the 50 day moving average this is typically bullish. When the level is below 50% stocks typically drift lower. When the level is above 72% it may mean the stock market is topping out and could move lower. When 30% or less of stocks are under the 50 moving average it may indicate the market is bottoming out and may move higher.
5. Percentage of stocks over the 200 day moving average: See the criteria above, the same applies here. Lean more towards paying attention to the % Stocks over the 50 Day MA.
6. Seasonal Indicator: The market, like the weather, has seasons. The market seasons can be more erratic than the weather. Therefore we apply the seasonal indicator with less weight that other measures.
IV. Stock Market Scout Chart: SPY Indicator Plotted with SMS Model Applied.