Market Sentiment Indicator: The Trend Indicator

Market Sentiment Indicator: Trend Indicator is At the Top

Updated Dec 13, 2022

Our goal is to determine the Trend In advance of the Event; to illustrate this point, let’s look at some real-time examples of the trend indicator in action. The red arrows in the charts are profit points for traders with short to medium trading time frames. We focus on the long and very long-term timelines but will always provide suggested exit points for investors with shorter horizons.

Blue arrows indicate buy signals based on the trend indicator, and red arrows indicate sell signals based on the trend indicator. As you will see from the numerous examples below, we are not looking to spot the ultimate bottom or top. In most cases, the signal turned bullish before a base was in place and bearish before a top was in place.

There is a saying in Wall Street that bears win sometimes, and Bulls win sometimes, but pigs always get slaughtered. The point we are trying to make here is that our goal is not to spot tops or bottoms or fixate on trend lines and worry about when the stock might or might not top or bottom. Our goal is to enjoy the ride up and or down until the signal changes, and that is it. With this strategy in place, it makes investing is an extremely pleasurable venture as one is in a position to identify market trends in advance.

We will start with FXI (iShares FTSE/Xinhua China 25 Index), one of the much larger ETFs. Even with this large ETF, you can see how beautifully and seamlessly the trend indicator works.

Market Sentiment Indicator: Not Trend Line Drawing

The trend indicator is not the same as Drawing Trend Lines.

If you were applying the principles of trend line investing, you would have waited for SOHU to break out above the black downtrend line (the breakout point indicated by the green arrow). However, the trend indicator turned bullish almost three years earlier and generated additional buy signals, as shown by the blue arrows. The trend indicator allows you to lock in significantly larger profits while at the same time focusing on the actual trend at hand, as opposed to trading based on news or wrong perceptions.

You would have been able to open a position in 2011 at around 32 instead of waiting till 2014 to get in at about 39.00-40.00. Additionally, you would have been able to add to your position along the way, as indicated by the new blue arrows. Short-term traders would have been able to bank profits as reported by the Red Arrows and re-open new positions based on the blue arrows.

Note that almost on every occasion, we neither managed to get in at the exact bottom nor out at the exact top. This is not a Tactical Investors strategy. At the Tactical Investor, our Goal is to use Market Sentiment Indicators such as the Trend Indicator to get in when the markets are oversold and the crowd is nervous and vice versa.

Let’s take a look at two examples: SOHU and NTES.

You would have been able to open your first position in SOHU in early 2012 and continuously add to it till 2015; along the way, you would have taken profits as indicated by the red arrows. If you followed the trend line investments protocol, you would still be waiting. Notice again; we rarely managed to get in at the bottom or towards the top; that is not the goal here. We aim to get in when the markets are issuing bottoming signals and get out when they generate signs of a top.

Once again, we would like to reiterate a Tactical Investor never attempts to time the exact top. If we do happen to time the actual top, we assign that to lady luck. Tactical Investing is all about getting when an asset class is hated or ignored by the crowd and that given asset is trading in the extremely oversold ranges.

The first buy signal for the stock NTES was generated in late 2011, and you would have got in and out continuously till 2015; along the way, you would have profits as indicated by the red arrows. Again, we rarely got out towards the top or in towards the bottom, and that is perfectly okay with us.

With Vimpel Communications (VIP), the first buy signal was triggered in Nov 2014, followed by a second and much stronger buy signal in Feb 2015. Shortly after that, the stock took off, and we bailed out around 6.30; while we managed to get close to the top, this was more luck than planning.

Our goal is to get when the market starts to give indications of a top, and this usually means we get in a bit early and out a bit early, but we are not too worried about catching a few extra points. We aim to get in before the market takes off and out before it breaks down.

The Tactical Investor Trend Indicator: Ideal for Spotting Tops

The Tactical trend indicator is also ideal for picking topping action. FXE, which is a proxy for the Euro, generated sell signals in August of 2011 and has continued to produce them until the present day. In between, we only had to buy calls as indicated by the blue arrows. Future traders, equity players and options players had many opportunities to short this market and walk away with massive profits. The same calls were made for Gold and the dollar. In fact, in 2011, we turned bullish on the dollar, bearish on the Euro and bearish on Gold. Our subscribers closed their positions in Silver bullion (profits of more than 1000%), Gold Bullion (700% plus) and Palladium bullion (roughly 800%).

With the trend indicator, you would not have missed the biggest and most hated stock market bull in financial history. The function of this indicator is not to pick the exact top or bottom. That task is best reserved for fools with plenty of time on their hands with an inordinate appetite for pain.

There was quite a bit of volatility, especially after we established the first position in 2009. If any acid is experienced, it is almost always over short-term time frames.

You stop worrying about short-term movements when you get used to how this indicator operates. Instead, if the market does dip lower after a buy signal is triggered, our mantra is to buy even more. As long as the trend is up, the greater the deviation, the better the buying opportunity

Looking for more, look at the extensive list of our Market calls.