The markets sold off hard today and the prevailing market rationale was Google and the comments of their CFO. I do not know if that was the reason, but I do know that buying the market tomorrow (lower) is a better idea than buying yesterday (higher).
Some of the indicators I look at are the Volatility Indexes. I want to see where they trade in relation to where they traded during the prior 10 days. The group at Tradingmarkets.com
has done studies and has found that buying when the VIX or VXO are 10% above their respective simple moving averages to be good entry points. The absolute number is meaningless. What matters is where they had been during the prior 10 days.
Currently, the VIX is at 12.34 and the 10 day SMA is 11.96. The VXO is at 11.84 and its 10 day SMA is 11.21.
The 10% above rule was not reached today, but if the markets sells off again tomorrow we will probably hit the 10% target.
My method is not to wait but to scale into buys in the ETF's. If they go lower I will buy more knowing that a short term bottom is probably close.
Another indicator that I utilize and have mentioned is the 2 day RSI. Tradingmarkets.com
has also tested this methodology and has found excellent results when buys are made based on this indicator. This rule is basically buy ETF'S when the 2 day RSI is below 10. The RSI is an indicator that is in all charting packages. Just switch the input to reflect a 2 day period instead of the standard 14.
The SPY closed the day at a 2 day RSI of 12 and i "nibbled." If they go lower, I will buy more.
These indicators and rules are fairly simple and generally if they line up we get good entry points (to be able to sell higher).
I also use some other indicators to generate buy signals and I will discuss them in future posts.