March 19, 2008

Most of Wall Street knows that Market's bottom when the little guy throws in the towel.  Most of the time we identify this in the form of panic selling.  Capitulation might be obvious in longer term oscillation cycles, which span the course of years, but in between these major oscillation cycles there are very few alternative indicators to gauge the immediate sentiment of retail investors, save mutual fund redemptions which lag considerably.

I'm going to give you an alternative and immediate measure of retail sentiment.  The objective here is to determine if the retail investor has, at least for a short while, thrown in the towel.  This is not an attempt at identifying capitulation, because we do not believe the Market will see outright panic selling until, probably, the end of 2008.  However, this alternative indicator is capitulatory in nature and can be used to identify an interim bottom and to correlate trading opportunities accordingly.

Stock Traders Daily sells thousands of real time trading reports through online venues such as Reuters (RTRYS), Yahoo Finance (YHOO), Ameritrade (AMTD) and similar firms all the time.  These reports are offered on a daily basis, and they are an immediate gauge of retail sentiment.  For example, if important news affects the shares of Apple Computer (AAPL), we see a bump-up in the demand for AAPL reports.  This summary takes that to another level by measuring overall demand.

The retail based demand for our real time trading reports has waned considerably in the first 19 days of March.  Specifically, retail orders accounted for 69% of the revenues during this same time in February, and they only account for 5.8% in March.  Further, overall business is down by 60%.

These declines are completely consumer driven.  Institutional business remains robust.

The takeaway: The retail trader has left the building.  He has capitulated, in a sense.  There's no sign of panic selling, or margin calls to call a capitulatory bottom to this Bear Market, but the consumer seems to have given up, and he usually does that at troughs.  That tells us the Market should trend higher from here, albeit for a short time.

In addition, consumers tend to buy aggressively at tops.  Consumer based revenues from this venue were up 34% from their monthly norms between November and January, when the Market was offering sell signals.

This sentiment indicator suggests that the Market may indeed be at a trough.  It does not, however, tell us that the Market is headed straight up from here.  The Investment Rate referenced below tells us something completely different in fact.

Long Term Market Analysis:  The Investment Rate is the most accurate leading longer-term economic and stock market indicator available; it told us in advance that 2007 would be a major transition year and that the market would be ending an uptrend that began in 1981.  Further, according to the Investment Rate, the Market has already began a downtrend that will eventually be comparable to the Great Depression and the stagflation period of the 1970s.  Anyone interested in more information about the Investment Rate should visit http://www.stocktradersdaily.com/Main/services/investment%20rate.html

Strategic Plan for 2008:  With the findings of the Investment Rate in tow, Stock Traders Daily developed a strategic trading strategy in August of 2007.  The goal of that strategy is to offer an alternative to longer term, buy and hold investments.  Since August the strategic plan has annualized about 100%.  The objective of the plan is to offer buy signals and short signals when reversal triggers occur.  On February 11, Stock Traders Daily identified another reversal trigger, and the next leg of the strategic plan for 2008 began.  The strategic plan helps to keep you ahead of the curve at all times, it helps you go with the flow of the market, and it helps you maximize your returns.  If you would like to review it you can visit www.stocktradersdaily.com.

Automated Trading:  Our ATAP program was designed so people who want to engage the risk controls of active trading strategies, but who also have personal obligations which restrict their ability to watch the Market, can still do so.  Take advantage of these risk controls while you work, play golf, or trade other stocks.  ATAP works as your eyes, ears, and your hands so you are free to do other things.  Click here t learn more:   http://www.stocktradersdaily.com/Main/services/atap.html

Good Trading

Stock Traders Daily

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