Update on the Chartist: System Back on a Sell Signal

An update on last Sunday’s column: The Chartist newsletter, whose stock-market-timing system was explained in the column, is back on a sell signal. The sell took effect July 24, after the market’s broad decline a day earlier.

As the column noted, Dan Sullivan, the Seal Beach-based editor of the Chartist, uses a formula that measures the market’s momentum (the number of stocks rising versus the number falling), the trend in major market indexes and monetary conditions in the economy. When two of those three indicators are negative, it can herald a significant market decline.

Also as the column noted, Sullivan’s system flashed a sell signal June 11 (after 13 months under a buy signal), then a new buy signal July 1.

The subsequent sell signal on July 24, Sullivan said, reflected the renewed deterioration in the market’s breadth--meaning that many more stocks were falling than rising.

Although Sullivan said such timing “whiplashes” are unusual, they aren’t unprecedented with his system.

With last week’s loss of 0.6% in the Dow industrials, to 8,883.29 by Friday, and a much more serious decline in the broader market (the Russell 2,000 index of smaller stocks fell 4.3% for the week), Sullivan so far looks safe rather than sorry.