Market Outlook: This 'Sure Thing' Indicator is Saying 'Buy, Buy, Buy'

Markets were little changed last week. Volatility has been increasing in the past several weeks after falling all summer. Low volatility eventually gives way to high volatility, a process that seems to be under way, so traders should be prepared for a sizable market move at any time.

Stocks Give a Long-Term Buy Signal
Stock prices were down slightly last week. SPDR S&P 500 (NYSE: SPY) lost 0.93%, while PowerShares QQQ (NASDAQ: QQQ), an ETF that tracks the 100 largest Nasdaq stocks, lost 0.04%.
QQQ closed last week with a relatively rare buy signal based on an indicator called KST. This is an indicator developed by Martin Pring, who said it offered a reliable market forecast based on the interaction of the stock market with the business cycle. He called it "Know Sure Thing" because he felt that it was the closest thing to a sure thing he knew of.

Three time frames for this indicator are shown in the chart below, using the parameters Pring offered in his 1985 book, Technical Analysis Explained. The medium and long-term indicators both crossed above their moving averages last week, while the short-term version has been bullish since July.

In the past, being long when all three KST indicators were above their moving average would have provided profitable signals for trading QQQ. Over the entire history of QQQ, 4 of 6 (66.7%) buy signals were accurate, delivering an annualized gain of 10.26% and having less than one-third the risk of a buy-and-hold strategy.  (more)