The Bullish / Bearish Conundrum Says Market Timer Frank Kollar

November 16, 2007 (FinancialWire) (By Frank Kollar)

300+ Dow points down, 300+ Dow points up. Extreme volatility is now the norm. The Nasdaq Composite Index – COMPQ lost 9% in only four trading days, and it was just a fraction from new rally highs when the first day began.

The question is…should traders be bullish, or should traders be bearish? A good case can be made for either stance.

On the assumption that most traders, investors, market timers, etc., are not day traders, such volatility as is currently being experienced in the stock market cannot easily be turned into profits.

All you can do is position yourself with the current trend, and go along for the ride. What is the current trend? That is the question of the day. After extreme selling over a four day span, the stock market roared to life on Tuesday, scoring a 300+ point Dow gain, and a huge 89 point gain in the Nasdaq Composite.

Adding to the confusion was a breadth explosion in the NYSE Tuesday, which scored a 14 to 1 advancing vs. declining volume trading day. Such days are uncommon and are considered a bullish indicator, especially when it occurs twice in a three-month period. And how many such days have we had in the last three months? Count them, FOUR! By this indicator alone, the stock market will be 10% to 14% higher in the next year.

Even so, the charts are setting off alarms left and right. The S&P Composite Index – SPX is well below its 200-day moving average, a bearish indicator that is now a strong resistance level. In fact, the SPX bounced off it in Wednesday’s trading and has been heading lower since. The Nasdaq 100 Index – NDX is still above its 200-day average, but has lost 10%, most of it in only those four days of trading. Not encouraging.

A good case can be made for a cash position right now. Wait for the breakout and new trend confirmation that is certain to come, and trade from there. There is always another trend. Keep your capital intact and jump in when the next trend has begun. The stock market is not safe at this time.

Kollar’s research has shown that the financial markets are in tradable trends approximately 80 percent of the time. FibTimer strategies define trends and trade them in both advancing and declining markets. Caring nothing about what newscasters say or what the latest economic indicator predicts, trends are where the profits are, and that is where FibTimer is.

Kollar is editor and chief analyst at FibTimer.com (http://www.fibtimer.com) which offers market timing strategies for S&P and Nasdaq index fund traders, as well as bond, gold, small cap, sector, ETF and stock trading strategies.