Trade alert – New “buy” signal from our stock market timing model ($SPY, $QQQ, $DIA)

Since generating the “sell” signal on April 4, 2012 that got us out of our long positions near the top, right before stocks entered into a correction, we have subsequently been positioned in a combination of cash and short positions or inverse ETFs. But for the first time in more than two months, our rule-based market timing model has shifted from an overall intermediate-term “sell” back to “buy” signal (click here for an overview of the four different modes of our market timing system).

Among other proprietary factors, last Friday’s (June 15) heavy volume “accumulation day” in the Nasdaq, which was also a bullish “follow-through day” (higher volume gain of at least 1.5% in the broad market), was the final trigger for the change in our bias. There was also big volume in the S&P 500, which helped to confirm the strong action in the Nasdaq. Nevertheless, it is important to note our new “buy” signal is not yet confirmed, as we still need to more confirmation in the form of leading stocks breaking out to new highs and holding. We should also see a significant pick up in the number of stocks hitting new 52-week highs versus stocks falling to new 52-week lows.

One might reasonably argue that much of last Friday’s volume spike was due to options expiration (and not real buying interest), and that could be true. Still, that doesn’t play a big part in our decision making because we always start off with reduced position sizing when we shift in to a new buy mode. This enables to start with reduced capital risk, which we gradually increase as more price and volume confirmation is received. If anything, the only point of concern we have with the current buy signal is that the major averages (S&P 500, Nasdaq, and Dow) are still trading below their 50-day moving averages. However, that could easily change with just one or two days of sharp upward price action in the broad market. Regular subscribers to The Wagner Daily stock trading newsletter will be promptly notified of any further changes to our overall market timing bias, as well as provided with our exact entry and exit prices for fresh individual stock and ETF swing trade picks in the coming days.