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Imagine that the IMS indicator is above 70, suggesting that it is near its peak. Now, while we are fully aware at this time that the market is likely to soon correct itself and drop, we don't do anything. Not yet. We wait. We focus on our Inter Market Strength oscillator [as shown earlier] and wait patiently until the % of stocks trending up, actually drops, and the oscillator reverses from rising to falling. When this occurs, we simply Short/SELL the Dow – no questions – just be fully objective.
Similarly, when the MAJORITY of stocks are
trending down and our IMS indicator is below 30, it is expected that the
market will soon stop falling, become attractive to smart
investors/bargain hunters, gather momentum, and start rallying. Again,
when this occurs, while we are fully aware of this expectation we don't
do anything, until the % of stocks trending up, starts to rise, and the
Inter Market Strength oscillator reverses from falling to rising. When
this occurs, we BUY [long] the Dow.
This simple trading system has resulted in a
consistent stream of profits, as shown on our web site dowtrader.net [all
trades are recorded and shown since launch, including exact entry/exit
points – no exceptions].
Looking at this a little more closely,
imagine the market to contain ‘mood’ swings in crowd behavior, just like
any individual person has mood swings…
Through history, if you study any chart of
the major indexes [especially the Dow], you will find that the market
always turns around from rally to decline, when everyone [the vast
majority of investors and media commentators] are at the peak of their
confidence, quite content to state that the market will just keep on
rising. It never does. All rallies are interspersed with regular [and
sometimes severe] corrections.
What our indicator does in one sense, [and
this is important] is to try and gauge this ‘mood
When stocks near their peak, the daft money [herd instinct] continues to jump on board – these are the ‘losing crowd’ of investors which professionals and smart traders, who are ‘selling’ at this time, are all too aware of, and make a very good living from I might add [forgive the cliche, but 'knowledge is power']...
For every seller there is a buyer. And when
the professionals know that stocks are nearing their peak, ready for a
correction, there are plentiful buyers who will take that stock from
them, because these herds of last minute buyers actually delude
themselves through false-assumptions often fuelled by over-optimistic
media, zealous politicians and their machinery self-praising the 'good
times' etc., which fuel individual investors into a sense of “maybe I
should jump on board”. To his detriment, the stock market then declines,
and he is left holding on to stock during the correction.
Our Inter Market indicator is engineered to measure, if you will, these ‘moods’ – when the majority of stocks are trending up, the herds are actually buying the stocks, which have already reached their optimum, short-term peak, ready for a correction. An IMS reading over 70 provides the first indication of this, ready for a fall.
Similarly, the Inter Market indicator also shows us when only a minority of stocks, are trending up. These are the times, when all the weakness in stocks has already been factored into the prices, and the market is expected to rally. An IMS reading below 30 provides initial indication of this, in anticipation of the next rally.
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