The Sentiment Table and ProShares Ultra Dow30 (ETF) (NYSEARCA:DDM)

February 03, 2015, 12:23 pm ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

If you listened to our Sentiment Table, which flashed oversold indicators on Sunday, you were able to take advantage of quite a nice move in the market as it bounced higher.  The SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) Rallied 2.9% since that oversold alert, the ProShares Ultra Dow30 (ETF) (NYSEARCA:DDM) rallied twice that much, and that's exactly what the Sentiment table was telling us, but now we should exercise caution.  Please keep in mind that our Sentiment Table is typically most accurate at identifying near-term shifts like this, it does this in advance of course, but I do not use it as a longer-term indicator.  In other words, it is very useful at identifying a snap back before it happens, like we saw today, or a sudden shift lower if the signal was an overbought condition instead, for example.

Now that the snap back has taken place that oversold condition has been mitigated.  In other words, the Sentiment Table is no longer telling us to expect a snap back to the same degree because the snap back has already come and fewer stocks are weak as a result.  That turns our attention to the driving indicators that we have been talking about, mainly the longer term charts, the risks that the bond market is telling us about, and our macroeconomic work.

The name of the game here is to take advantage of opportunities, and it is not to be one sided at all, so although many of you may have a look at the macroeconomic work, the longer term charts, and the warnings that are coming from investors in the smartest asset class I know of, and think that we may be one sided, that is certainly not the case.  Our objective is to remain in control of our risk and to take advantage of the market's move, regardless of where the market goes.  If it so happens that the move is higher, that's great, and if the move is down, that's great too.

On Sunday, our Sentiment Table told us that the probability of a snap back in the market was high, that's exactly what we've gotten, and now, because the Sentiment Table is no longer flashing those oversold conditions to the same degree the probability of an additional move higher again is lower.

I hope you enjoyed the ride, but will have to see if what our additional analysis on Sunday suggested will prevail or not.  Remember, that analysis also told us that we were very close to a level of longer term support in the longer term charts, which suggests that we are very close to a trigger in the Strategic Plan Strategy too, but it would require the markets to decline about double of what they increased for that to happen.  Right now, that seems like a stretch, but a test of longer term support does not need to happen this week anyway.  It just so happens that our combined analysis over the weekend told us that the probabilities were high.

If you're reading this and slightly confused, let me shed additional light on the subject.  Our Sentiment Table was telling us that an oversold condition existed and we should be prepared for a snap back in the market accordingly, but that is a near-term observation and our more broad observations suggest that a deterioration to longer term support take place, so intuitively we would expect a decline to longer term support after the snap back accordingly.  We shall see...

Disclaimer: Stock Traders Daily provides trading strategies, which by definition incorporate risk controls, and it has only engaged in buy and hold strategies twice since the turn of the century. The first was in October of 2002, and those buy and hold strategies lasted until 2006, and the second was in February of 2009, and those buy and hold strategies lasted until the end of 2010. Every point in between Stock Traders Daily has been providing risk controlled strategies, market based strategies, and strategies for approximately 3000 individual stocks, which are unbiased and which incorporate the notion that short term gains lead to long term success. There is a time and a place for buy and hold strategies and this is neither the time nor the place for that approach in our opinion. Risk controls are essential.

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