17th day of $QQQ short term down-trend

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

46%

I remain on the sidelines.

16th day of $QQQ short term down-trend

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

43%

Yet another bounce!

15th day of $QQQ short term down-trend; 100% in cash; head and shoulders top to form???

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

41%

For the first time since December, 2012, the QQQ has closed the week below its 30 week average (solid red line).  This is a serious sign of weakness that bears careful watching (pun intended).  If the QQQ remains below its 30 week average so that the average itself turns down, it will signal to me the beginning of the end of the Stage 2 up-trend and possibly lead to a Stage 4  market decline.  Only time will tell me whether this is happening.  A trend follower must wait for the top to be in and for a significant decline to begin. I cannot therefore avoid giving back some gains.  Since the bottom of the steep 2008 decline, there have been 4 multi-week periods where the QQQ was below its 30 week average. All of them were resolved on the up-side.  It is impossible for me (or anyone else) to accurately predict in advance how this one will turn out. But this one comes after a rare 30% advance last year, coming after a multi-year advance.

QQQwkly04112014

Given that the QQQ has completed its 15th day of a short term down-trend and that the GMI is on a Sell signal, I have withdrawn all funds from this market in my more speculative trading accounts.  I remain invested 100% in mutual funds in my university 401 (K) account, for now, because of strict trading limits imposed by the fund group.  Nevertheless, if the QQQ closes several weeks below its 30 week average I will reluctantly consider transferring some of the money out of the growth equity mutual funds and into a money market fund.  If I had complete freedom to go in and out, I would have already taken some of that aggressive mutual fund money off of the table.  In fact, if the QQQ rallies back to around 89, I will likely go ahead and transfer some money out of the growth mutual funds.  If we get a rally to that area and it should fail, I fear a possible head and shoulders top will form leading to a significant subsequent decline. I have labeled the possible left shoulder (S) and head (H) in the chart above.  It is critical that the next rally in the QQQ continue through the level of the left shoulder (89) and approach and eventually surpass the prior peak (91.36).  A failure to do so would signal to me a  major  decline is imminent. An up-trend consists of a series of higher lows and higher peaks. It is critical for me to watch closely but to not become attached to any expected scenario.  The market has to tell me what its intention is before I act…..

According to IBD the market remains in a correction.  They also said in Monday’s edition that the Put/Call ratio was 1.15 on Friday.  A ratio of at least 1.2 usually indicates extreme bearishness among the option players (more puts being traded than calls) and the market often bounces.  And my other daily indicators are very over-sold.  If a lot of people lick their wounds over the weekend and decide to sell at the open on Monday morning, we could get a solid bounce afterwards. But the Worden T2108 indicator is only at 41%, far above the level where the market has bottomed in the past.  And the weekly stochastic is also far from oversold.  If the market bounces early next week, I would not expect it to hold for very long….

Note from the GMI table below that the SPY has finally closed below its critical 10 week average.  The QQQ has spent 3 weeks below its 10 week average.  It looks like the QQQ is leading the other indexes.

GMI04112014rev

 

 

 

14th day of $QQQ short term down-trend; GMI turns 0

GMI

0/6

GMI-2

1/8

What is the GMI?
 

WORDEN T2108

48%

I am in cash on the sidelines in my trading accounts.

13th day of $QQQ short term down-trend

GMI

4/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

60%

Let’s see how far this bounce can go.

12th day of $QQQ short term down-trend

GMI

1/6

GMI-2

1/8

What is the GMI?
 

WORDEN T2108

55%

I am on sidelines, in cash in my trading accounts.

11th day of $QQQ short term down-trend

GMI

1/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

52%

GMI has flashed a Sell signal.

A Tale of Two Markets; IBD goes back to market in correction; Sell in May?

GMI

2/6

GMI-2

2/8

What is the GMI?
 

WORDEN T2108

62%

I have been posting for a while that the tech stocks were weak,  as reflected in the QQQ, even as the large cap stocks in the SPY and DIA remained strong. My short term trend count on the QQQ reached the 10th day of its down-trend on Friday.  I noted in my Thursday night post that it remained to be seen whether the tech stocks or the others would take the lead for the market.  It now appears that the weak tech stocks were forecasting overall market weakness. My trading gurus have written that when the market leaders fail, the rest of the stocks eventually falter.  If the exciting growth stocks cannot climb higher, one should not expect the slower growing stocks to push higher.  I know there are times when value stocks outperform growth stocks.  But I think this typically occurs after a bear market when people tiptoe into the conservative stocks first.  As people have profits and gain confidence in the market , they switch into the riskier growth stocks. But that is likely over now for this cycle. Abandonment of the growth stocks probably reflects greater fear of overly high prices and a coming market decline. And given that we are approaching the “Sell in May and Go Away” period, some people may have hit the exits early. Everyone wants to get out first……

Readers have asked me how I could have a GMI Buy signal in place during a QQQ short term down-trend.  The two are not mutually exclusive.  The GMI counts short and longer term indicators.  While it is rare, it is possible for 4 or more GMI components to be positive (required for a buy)  while a short term component is negative.  I use my QQQ short term indicator to time my positions in my speculative trading accounts. I have been largely in cash or short in those accounts since the QQQ short term down-trend began about 10 days ago.  But I also  use the GMI to provide further context for my trading decisions.  I currently remain invested in mutual funds in my university pension where my trades are limited. The GMI is typically “0″  for a while before I exit those mutual funds and go into money market funds. I hope this explanation helps…..

After only a few days, IBD has now gone back to calling the market in a correction.  I think it was a mistake for them to go to an  up-trend in the absence of a high volume follow-through day. (I noted this concern when they first made their call.) The GMI table below shows the divergence in this market.  The QQQ has now closed below its 10 week average for two weeks even as the SPY has closed above its 10 week average for 8 weeks.  I have written repeatedly that I cannot make money being long tech stocks when the QQQ is below its 10 week average. Meanwhile, the QQQ short term down-trend count is D-10 (10th day).  By my calculation, about one half of the QQQ short term down-trends since 2006 that reached day 10  lasted for more than 20 days. And with the Worden T2108 indicator at 62%, the market is far above the level (10-20%) where major prior bottoms have occurred. If the market closes Monday with the GMI below 3, it will trigger a new GMI Sell signal. This is too volatile a market for me to trade.

GMI04042014

9th day of $QQQ short term down-trend

GMI

4/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

70%

The QQQ failed to hold its critical 30 day average on Thursday.  Its short term down-trend remains intact. There is still a divergence between the QQQ and the SPY and DIA. We will know soon which group is leading the market.

8th day of $QQQ short term down-trend

GMI

5/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

72%

Tech stocks, as measured by the QQQ short term, are still lagging.  But the GMI is at 5 and on a Buy signal.



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