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The Outlook we post to the site is based on the "Four Anchors" of Sentiment, Studies, Trend and Support/Resistance.  It ranges from 100% Bearish to 100% Bullish, depending on whether each of the anchors is bullish or bearish for the market.

 

It is not based on an actual trade that we place in personal or directed accounts, and it is not trading advice.  It is a general outlook that we use for the coming days (short-term) or weeks/months (intermediate-term).  We use the S&P 500 SPDR (SPY) so that subscribers have specific, accountable levels to track the Outlook (dividends are an issue, and we will note when they impact an Outlook).

 

We mainly focus on one thing - sentiment - and always assume that subscribers utilize other resources and their own methodologies for fundamental and technical analysis.  So even if we are 100% bearish due to sentiment, subscribers should incorporate that view into their own research, and not trade based solely off of that view.

 

Following is a list of recent changes in the Outlook.

 

 

 

 

 

 

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Prior to September 2010, we published a "signal strength" system that was bullish or bearish the market (S&P 500) on a sliding scale based on our confidence in the signal.

It ranged from 100% Bullish (we strongly expect the market to rally) to 100% Bearish (we strongly expect it to fall).  The signal can move in 25% increments either way.

The strength of the signal is based on four basic factors:

1. The market's underlying trend

2. The proximity of technical support / resistance

3. The degree of optimism or pessimism evident in our indicators and models

4. Other tendencies (seasonality, price patterns, etc.)

We neither expect nor encourage any subscriber to take these as trading signals, so if you do please understand that you're on your own.  We mean for them to be wrapped into your current methodology and give you more or less confidence in your trade based on what our evidence is suggesting.

The signal strength is not necessarily indicative of positions held in managed accounts.

Below is the archive of all signal changes, for the Short-term and Intermediate-term, since their inception on September 20, 2007.

The current signal is on the top row in the "TO" column.

The changes are based on the S&P 500 front-month e-mini futures contract for the short-term, and the S&P 500 cash index for the intermediate-term.

Key:  Bullish (%);  Neutral;  Bearish (%)

For Investors, we were following an alternate system prior to September 20, 2007.  That system was based on a simple set of mechanical rules, basically which we still use as a general guideline for how we approach the market.  Details on that follows the table.

The alternate system we followed was a (nearly) 100% mechanical system that is either long, short or neutral the S&P 500 index based upon the following guidelines:

	If the 200-day simple moving average is rising, then the default Position is long.
	If the 200-day simple moving average is falling, then the default Position is short.
	If the default Position is long, then it will only change if the spread between the Smart Money and Dumb Money drops below -25%.  In that case, the Position will go to neutral once the S&P 500 closes below its 21-day exponential moving average.  The Position will go back to long if the S&P closes at a new high, or if the Smart Money / Dumb Money Spread reaches +25% and the S&P subsequently closes above its 21-day exponential moving average.
	If the default Position is short, then it will only change if the spread between the Smart Money and Dumb Money rises above +25%.  In that case, the Position will go to neutral once the S&P 500 closes above its 21-day exponential moving average.  The Position will go back to short if the S&P makes a new low, or if the Smart Money / Dumb Money Spread reaches -25% and the S&P subsequently closes below its 21-day exponential moving average.

We will take some slight discretion in these Position changes, which would involve one of the following:

	If the Smart Money / Dumb Money Spread reaches an historical extreme, then we may not wait for the confirmation of the 21-day moving average before making a Position change.  This is to take advantage of rare panics in equity markets.
	If the spread gets very wide but not quite to -25% or +25%, then we may make a Position change on a violation of the 21-day exponential moving average.  This is to take advantage of opportunities during strong trends.
	If the S&P moves to a new high or new low and we re-enter a position, then the S&P immediately moves against the position and violates the prior swing low or high (respectively), we will likely move back to neutral.  This is to prevent large losses during times of major trend changes.

For back-testing purposes, we did not optimize any settings, or use any discretion in terms of spread extremes.  An expert in systems design could likely come up with a superior mechanical model, however our goal is to present clear, simple and practical guidelines for using the Confidence indexes.

Following is the list of prior changes to the Position (using backtested results up to 10/18/06) based upon the criteria listed above:

 

 

 

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