More “BUY” Signals

Welcome again to STP Algo Trader!

We are kicking off our second week here and hope you have been enjoying the content…

Here is a reminder of our content schedule…

Tuesday – MARKET INSIGHTS - We share insights driven by the data from the system.

Wednesday – USER BLOG - We share the STP “User Blog.” This is where one of our users shares their experiences with the system. We will welcome any user submissions for this letter in the future.

Thursday – POSITION REVIEW - We thoroughly review a recent position. We will go through a play-by-play analysis of why the system chose the idea and how it played out.

Saturday – THE METHOD - This is where we go through each of the individual aspects of our system and explain them in detail.

We hope you had a chance to check it out and (for now) you can access the archives at our daily.hxresearch.net website here.

Feel free to share any feedback or comments at any time. Either at the bottom of our web page or at [email protected]

Again, welcome to STP Algo Trader. We look forward to making YOU money!

Last week, we shared some unique market signals generated by our proprietary algorithmic trading software – Signal Trader Pro. You can read that note here.

As we explain in that note, our system generates ENTRY SIGNALS when we find a “winning” stock that has been deeply oversold (measured by RSI) and begun to recover.

Before that signal is generated, though, we also generate WATCHLIST signals. This is when we flag the same "winning" stocks that have become deeply oversold but BEFORE they have begun to recover.

The number of these signals that remain outstanding in the system has historically been a good measure of market sentiment and the likelihood of an upcoming market rally.

It is not only the number of overall signals but the quality of the companies that have signaled.

In a normal up trending stock market, we seldom see stocks with a "14" or "15" signal.

From the time we launched the current version of the system back in July 2024 until year-end, we saw only about a dozen “15” signals a buy. Since the start of the year, though, and with the big stock market sell-off, we have seen over three times that number of signals.

Some might see this as a bearish signal. The highest quality companies becoming deeply oversold.

Our experience is exactly the OPPOSITE.

When the highest quality companies become oversold, you are approaching a stock market bottom.

Again, it is not just about the stocks being down but also being oversold.

Even if we have entered a new BEAR MARKET downtrend in the stock market, when stocks get oversold enough, they will rally.

Here is an update on the number of WATCHLIST signals outstanding from our system…

At the end of the chart, you can see an even more dramatic drop in open WATCHLIST signals as the market begins to rally.

The chart is busy, but you can see we have identified when we saw these drops previously with the red circles.

We also show green lines when the number of WATCHLIST signals has dropped to almost zero. This is what it has just done. The last two times this has happened, it has been a signal for a decent rally in the S&P 500.

This makes sense and matches the methodology that drives Signal Trader Pro.

We identify deeply oversold positions where the RSI has traded below the 30 level and then look to generate a "buy" signal when it trades back above it. This indicates panic, also when investors begin to calm down.

It works the same way with the overall stock market as with individual stocks.

Here is a chart showing the same date for the open number of “Entry Signals” …

The number of outstanding ENTRY SIGNALS has exploded.

This makes sense, given our system, as stocks are recovering, and they move from the WATCHLIST to generate an ENTRY SIGNAL. Remember, this happens when the RSI goes from below 30 and back above that level.

We now believe that our system has generated a strong signal of stock market recovery.

How long will the rally go?

Here is a chart of the S&P 500 along with the moving averages…

Yesterday, the stock rallied to the 200-day moving average (the blue line), but we firmly believe that in the coming weeks, it will move towards the 50-day and 100-day moving averages.

This would put it closer to the 5900 level or about +3% from the current levels.

With that rally, we believe we will see quite a few profitable EXIT SIGNALS from our system, as most of the stocks are more volatile than the stock market.

This means that RIGHT NOW is one of the more attractive times we have seen in the last few years. We like to call this a "target-rich" environment!

If you would like to see our open ENTRY SIGNALS click here for more information and to sign up for the market’s best algorithmic trading platform, Signal Trader Pro.