Long Term Market Analysis: PMO turns negative

Drizzt: long term market analysis is a series once or twice a month where we take a look at longer term trends in the market to get our bearings right on the general direction of where market prices is going.

S&P 500 [ Weekly 1997-2011 ]

In our last analysis, we talked about the 43/17 Weekly EMA likely indicating an impending prolong draw down.

Long Term Market Analysis: PMO turns negative 20110924%20sp500

Some readers have asked where did I get my charts from. I subscribed to a USD 19.90 monthly service over at www.decisionpoint.com . It primarily provides buy signals and sell signals based on their proprietary PMO indicators.

I don’t use it that much but it does provide me with data dating back quite far back for me to risk manage through longer term.

You guys do not need to do that. I discovered www.TradingView.com which provides us with a similar long term chart of the S&P 500 as well. (Chart here)

Decision point’s proprietary indicators is interesting. To me, it seems to function somewhat like the MACD indicators. How I like to us it to see from a long term perspective, whether it cuts the 0 from top or bottom.

In the case of the PMO it is the same. On a weekly chart, PMO becomes useful together with the 17/43 week EMA cross over to give you an indication of price movement.

The black lines in the chart above shows the zero line cross over. Since 1997 if you follow this plan, it will save you from large draw downs.

Right now, the 1100 and 900 areas look important. Particularly the 1100 area, because when I plot a Fibonacci fan, 1100 also coincides as an important point.

PMO currently is turning below the zero on the S&P500.

STI [ Weekly 1997 – 2011 ]

Long Term Market Analysis: PMO turns negative 20110924%20sti.

How does the 17/43 week EMA and PMO work on the Singapore STI index? Generally good. But in 2002, there are abit of whipsaws that would most likely result in you putting in money and then dumping them out.

PMO currently is turning below the zero on the STI.

Conclusion

On both charts the key thing is that prices look likely to go lower. Most of the value investors I followed have indicated that the market is by no means expensive and they present good value and I would urge folks to take this opportunity to pick out companies that you used to find expensive but are at more attractive valuations.

These indicators are likely to show us when the market is turning up, but if you carry out dividend investing like me, investing in high quality dividend stocks at lower valuations would enable you to sit through this bear while minimizing the downside.

Portfolio Changes

Not much big movement, but I did add 1 lot of Singtel at 3.06 and 6 lots of First REIT at 0.77. I think these 2 companies are solid dividend yielders at 5% and 8% yields. (follow their daily yields here >) 

To buffer the downside, I have laid out some DBXT S&P Short 10 US$ which is a short S&P500 ETF on the SGX and some VXX and SDS on the US Stock exchanges.

Depending on the volatility, I may reduce abit of my Singtel and First REIT, particularly First REIT, as I think I may stand to get them at lower than my current average price.

For those interested in tracking my most current holdings, you can review my portfolio over here. Learn to use our Free Stock Portfolio Tracking Google Spreadsheet to track stock transactions.

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  • http://sgmusicwhiz.blogspot.com Musicwhiz

    Hi Drizzt,

    Perhaps I am just dumb – but I read your whole article without knowing what “PMO” meant. Care to explain, please?

    Thanks,
    Musicwhiz

  • Drizzt

    no worries mw, i think it stands for price momentum osciallator. just their own form of indicator.

  • stocksbeginner

    Hi,

    May I know what is a good price to enter for FIRST REITS??

    thanks!

  • Drizzt

    hi stocksbeginner,

    That is a hard question. Even at 77 cts i do enter First REITs but i have a plan for it if i think i can collect it lower. if it gets to below 70 cents it is all good.

    We will never know how low it will go but any value between 40 cents to 70 cents are good.

  • Gregg

    Hi Drizzt

    Great move, you added First REIT again.

    All of us know that First REIT is actually a very good defensive yield stock at the current volatile market. But, I noticed that there is not much analyst would recommend investor to buy in this counter,especially for The Edge magazine.

    The other defensive counter, Starhub break up $2.90 resistance and closed at $2.92, quite surprise of this spike up at the current market.