Is worst of stock market decline over? I’m not betting on it…..

GMI

0/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

19%

Wouldn’t you know that the extreme market action would occur just after I went on vacation? I was not surprised by the down market last Monday. When stocks have a bad week and end on a down note on Friday, people get scared over the weekend and sell on Monday morning.  The depth of the Monday flash crash was very scary, however,  and will probably affect the market for some time. It is interesting to me how few commentators are stressing the utter failure of the exchanges to have an orderly market open on Monday morning! Fortunately, as my readers should know, I have been exiting the market for weeks. I have been 90%+ in cash and am now 100% in cash in my trading accounts.

I listened to the CNBC market pundits occasionally for entertainment, not to follow their advice. I discovered this  neat site while looking for the famous quote in October 1929 by the economist of the day who said the market had reached a permanent high plateau, just before the  October 1929 great crash! In searching for the quote, I found this site which shows graphically how wrong the economists, businessmen and politicians  at the time were about the future impact of the October 1929 decline on business and the stock market. Note the assertions similar to those we heard this week,  that business was good and would not be affected by the market action. Note also that the October 1929 crash was only the first leg down of a multiyear decline that bottomed out in 1932 with the Dow below 50 during the Great Depression. I show my students a more recent example of the sagacity of market pundits during Enron’s dissent from $90 to 0.  The great Wall Street stock firms kept recommending that their clients buy or hold Enron stock as it fell to nothing. After seeing that example, my students have a healthy skepticism for  most brokers’ advice. As I warn them, their broker will make them broker. So it did not surprise me when I listened to the CNBC pundits in recent days saying that the market decline had nothing to do with business conditions, which look just fine to them now. History does not exactly repeat it just rhymes…

The huge Boomer bulge in the population has driven cultural events all of my life, from turning our parents to read Dr. Spock for child rearing advice, to the hippie culture of the 60’s,  the boom in college enrollment, and to the huge economic boom of the 80’s and 90’s as the Boomers reached peak earning power grew their families. Now we Boomers are heading toward retirement. Most have mainly Social Security and 401 (K) earnings to sustain us. What do you think the Boomers are going to do with their pension investments after last week’s market action? I suggest many will reduce their exposure to stocks, and cut spending on luxuries and big ticket items. Money protected in low yielding CDs and even savings accounts is safer and more attractive than money invested in stocks and even ETFs. So, right or wrong, I suspect that we will see Boomers exiting the market, especially if the indexes retrace a little more of this vicious decline and they can get out near their recent account balance highs. If the markets start to fall again and break last week’s lows, I fear we will see a  protracted decline that will extend for months and thousands of Dow points. Bear markets used to last 10 months.

While all of my trading accounts are in cash, I am less able to time the market in my pension mutual funds in my 401 (K). However, I will likely transfer even these funds into money market funds in the coming days or weeks. I would rather miss a further 5-10% rise than sit through a possible 20-40% decline. The GMI has now been 0 (of 6) for the past 5 days. The last time the GMI was zero for so many days was last October. That decline ended and a nice rally began that lasted thorough this summer. But compare the depth of the QQQ’s decline last October to the debacle that just occurred. The technical break-down is far greater (no, this weekly chart is not wrong). I therefore would not expect a quick resumption of the up-trend, although as we know, anything is possible when it comes to the market. If the QQQ fails to retake its 30 week moving average (red solid line) like it did quickly last October, the recent decline could be just the beginning of something nasty.  Being in the seasonally weak part of the year for the market (September/October) and with the Fed  likely to start raising rates by year end, I think this is not the time for me to be bravely in the market on the long side. I hope I am wrong, but I am a chicken when it comes to my investments.

Screen Shot 2015-08-30 at 3.03.10 PM

GMI08282015

In cash

GMI

0/6

GMI-2

2/8

What is the GMI?
 

WORDEN T2108

16%

IBD sees the market in correction and reports a put/call ratio of 1.0 on Thursday. It reached an extreme  level above 1.4 earlier in the week.  The market tends to bounce when the put/call ratio is greater than 1. With the GMI at 0, it remains to be seen if we have a bottom in. With the weak month of September yet to come, I expect we might get a re-test of Monday’s lows. I am in cash in my trading accounts and ready to move to money market funds in my university pension if the indexes weaken again. Remember, I am a chicken when it comes to managing my money. This daily chart of the SPY shows how ugly and swift this decline has been.

SPY08272015

 

 

T2108 called this bounce–yet again!

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

10%

The Worden T2108 indicator measures the percentage of all  NYSE stocks that closed above their simple 40 day moving average. When T2108 falls below 10% it is a sign that the market will bounce from a very oversold level. The T2108 was at 6 on Tuesday and at 10 at Wednesday’s close. There have only been a few times T2108 has gone to single digits in the pas 28 years since Worden started tracking it. Here is a monthly chart of T2108 since 2007. In 2008 T2108 got as low as 1.2.  In the 2011 decline it reached 6.5.  In the 1987 rout it reached its lowest ever, 0.5. One should not start selling when T2108 is below 10.

T210808262015

 

9th day of $QQQ short term down-trend; Sell in May worked

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

6%

I am 100% in cash.  Market did better on Tuesday than is apparent from averages. Only 337 new lows, down from 1465 on Monday. There were 40% gainers versus 7% on Monday.  With T2108 at 6%, the market is very oversold. Guppy chart of SPY is not yet BWR, but RWB pattern is clearly over. Red arrows show month of May and that Sell in May worked like a charm this year. Thus far, the current decline looks quite small.

08252015SPYGMMAWith T2108 in single digits and the futures strong, I am tempted to nibble a little at QQQ or SPY. I have said many times that I should buy when T2108 is in single digits and everyone is scared….

T2108 at 7%; in cash; BE CAREFUL

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

7%

The T2108 has fallen to single digits. I have always found that I should have held my breath and bought anytime it has fallen below 10%. While on vacation last week I went 95% to cash in all trading accounts. I will wait for the dust to settle to determine my future moves. My short term QQQ trend indicator is in the 9th day of a down-trend. Maybe I was too quick to stop posting that indicator. It had whipsawed so many times recently. I estimate that the  GMI would have flashed a Sell signal last Thursday or Friday.

IN SPITE OF ALL OF THE PROGNOSTICATIONS OF THE CNBC PUNDITS, NO ONE KNOWS HOW OR WHEN THIS DECLINE WILL END.  WE MUST BE CAREFUL AND PROTECT OUR MONEY.

Longer term up-trend intact; $ZLTQ

GMI

5/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

39%

 

As I struggle to maintain my weight loss of the past few years, a friend told me she was going to try the cold body sculpting method of reducing bulges. I researched the company (ZLTQ) that produces this new body shaping technique and bought some shares. Maybe this stock will win the battle of the bulge?   ZLTQ recently had a third green line break-out to an all-time high and has been making money.

ZLTQ08182015

I will not post again until 8/25–a rare vacation.  Enjoy the summer market doldrums.

Technicals are strengthening

GMI

4/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

41%

GMI back to 4 (of 6) and T2108 is at 41% and is at highest reading since July 17. T2108 measures the percentage of NYSE stocks that are above their 40 day simple moving average and shows that large cap industrial stocks may have bottomed.

T210808172015I am beginning to wade back into biotech stocks. I like AMGN and CELG.

Still cautious, mainly in cash; $HD shines

GMI

2/6

GMI-2

4/8

What is the GMI?
 

WORDEN T2108

37%

The GMI still is on a Buy signal, but I am content to wait this market out. Note that HD had a green line break-out (GLB) to an all-time high last week. HD reports earnings this Tuesday.

HD08142015

 

GMI08142015

On sidelines.

GMI

3/6

GMI-2

4/8

What is the GMI?
 

WORDEN T2108

33%

Another bounce

GMI

1/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

34%

With the put/call ratio still above 1, bearishness is high and the bounce is on. I am patiently waiting on the sidelines in cash. The GMI could go to Sell with a weak day Thursday.



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