Performance of $QQQ during GMI signals; GMI to issue new signals; GLB: $FOXF, $FLT

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Below is a plot of the QQQ during periods when the GMI was on a Sell (red) or Buy (green) signal. Decide for yourself if this signal would have helped you stay out of bad markets, as it did for me. The GMI signals are rather conservative because the GMI tends to turn green well after the bottom of a major decline and a new up-trend has become firmly established. It also tends to turn red well after market tops. Such is the nature of trend following indicators!

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A plot of the shorter time period, from 2014-2016, shows more clearly that while the GMI is red during longer declines of the QQQ, it has had a number of times when it turned red right at the bottom of a very brief decline. I therefore do not necessarily exit all positions when the GMI flashes a “Sell” signal but look at additional indicators for confirmation. I am therefore changing the GMI signals from Buy/Sell to Green/Red.   Green signifies to me that conditions favor being in stocks, while Red means the opposite and that extreme caution is needed.

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Speaking of short declines, the GMI  turned Green at last Thursday’s close after being Red for just 8 days. As noted in the charts above, the GMI turns Red after registering 2 consecutive days below 3 and turns Green after 2 consecutive days above 3.

All of the indicators measured by the GMI and GMI-2 are currently positive. In addition, Friday was the 6th day of the new QQQ short term up-trend, which is assessed differently than the GMI signals. Note that the SPY is still (for 3 weeks) below its critical 10 week average.

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FOXF had a GLB on its highest weekly volume since it came public in 2013. FOXF is being added to an index ETF.

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FLT also had a GLB last week.

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New GLB tracker table shows strong recent break-out stocks; $GIMO retests GLB and soars; Schizoid market

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I updated the GLB Tracker Table. It now shows stocks that evidenced a strong week last week by hitting an all-time high on large volume,  and that had a GLB last week or since 8/29. I could not bring myself to delete CLCD, up 197% since it passed its green line break-out point–a lucky pick! This list does not contain all GLB stocks that occurred during this period. It contains only those that have held their GLB (i.e., successful) and have strong technicals and/or fundamentals. The performance of the stocks in the GLB Tracker Table updates during the trading day. While the table appears daily to the right of this post, I thought it useful to show it below too. These are stocks at or close to their all-time highs that need to be researched before I purchase. One benefit of these stocks is that they are less likely to be extended because they have recently broken out above a prior all-time top and therefore may have been just launched on a new journey upward.

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If I buy a GLB stock I immediately sell it if it trades back below its green line break-out point–no exceptions. If it then comes back above its  green line on good volume, I might buy it back. This was the situation with GIMO.

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I find that a daily chart can often lead me to be whipsawed and to sell a good stock too soon. It’s like checking one’s blood pressure or cholesterol too often. Look at how nice GIMO’s post break-out consolidation appears in this weekly chart. Up weeks occurred mostly with higher volume than with down weeks. No reason to sell out early if I had focused on the weekly pattern……..(luckily I bought it back)

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The GMI remains on a Sell Signal but my QQQ short term trend indicator has just turned up!  There is a huge divergence between the tech stocks, reflected in the QQQ, and in the large cap stocks measured by the SPY and DIA.  Thus the QQQ closed back above its 10 week average while the SPY and DIA remain below their 10 week averages. This is a schizoid market!  Either the QQQ will turn out to lead stocks back to a new up-trend or it will revert to the downward trend of the other indexes. Maybe this will all be resolved after the FED speaks later this week, or after the Presidential election? I am buying break-outs but am very defensive, with small positions and close stops.

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September swoon? Weak Fridays often lead to Ugly Mondays—Indicators I watch for a bottom

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I have been writing for a long time that September is historically the weakest month of the market and more recently that the major indexes have been consolidating within their narrowing upper and lower Bollinger Bands. Well, the market finally tipped its hand on Friday and broke out into a downward direction. This daily chart of QQQ shows a high volume decline out of the recent  channel formed by the 15.2 daily Bollinger Bands. The expansion (widening) of the bands often signals the beginning of a major move. Large declines on Fridays often lead to ugly Mondays when the public gets a chance to sell after pondering their portfolio losses over the weekend. So, where to now?

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Bottoms often come in October when it may take 3rd quarter earnings release season to revive stocks. We are now in the post 2nd quarter earnings release lull and a decline typically sets up the next earnings propelled rise. So how can we know when the market is likely to begin a sustainable rise?

I watch several indicators very closely when the market enters a decline. If the daily put/call ratio, a contrary indicator, gets to 1.2 or greater the market often bounces at least for a day or so.  The p/c ratio  closed at 1.14 Friday, not too far from denoting an extreme level of bearishness by option traders.  But the poll of newsletter writers, another contrary indicator,  shows many more bulls than bears, a bearish sign.

The Worden T2108 indicator measures the percentage of NYSE stocks that closed above their simple 40 day  moving average of closing prices. I consider T2108 to be a pendulum of the market and post it here every trading day. As this monthly chart shows, since its inception in 1987, T2108 rarely falls into single digits or climbs above 90%. I drew in red and green lines to show these extreme levels. When T2108 declines to 10% or lower, it is a screaming signal that the market is extremely oversold and near a bottom. I typically do not have the courage to buy stocks when that occurs because stocks are falling rapidly and the media pundits are typically predicting economic Armageddon, but I will consider buying a market ETF, like SPY. The market, unlike individual stocks, has always come back. Major declines  in 2016 ended with T2108 at 6% or less. T2108 closed Friday at 37%, far from an extremely oversold reading.

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I also look at the daily 10.4.4 stochastics indicator. The major indexes tend to bottom at least short term when their daily stochastics readings fall below 20. On Friday the stochastics for QQQ was 61, 60 for DIA and 64 for SPY, all far from oversold levels. While the market can do anything, I think we are currently closer to the beginning of a decline than to an end. But Mr. Market often proves me wrong.  I remain a trading chicken. So for now my trading accounts are in cash….

A flat or down day on Monday will end the QQQ short term up-trend, it having lasted 46 days through Friday. More significant, the GMI is now at 2, and two consecutive days below 3 triggers a GMI Sell signal.  The GMI helps me to determine the longer term trend of the markets. The QQQ and SPY have also now closed below their 10 week averages, a significant indicator of weakness. I rarely can make money buying stocks when QQQ is below its 10 week moving average.

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$DW: A Successful Green Line Break-out; updated GLB tracker table; All GMI components positive.

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Last week I began a new semester with a class of 160+ freshmen who, I hope,  want to learn technical analysis. I thought it would be helpful for them to see early on the type of rocket stock I want them to learn to identify. I look for green line break-out (GLB) stocks like DW, illustrated in the weekly chart below.

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When I detect a stock that I am interested in, I first look at its monthly chart so I can draw a green line at it last all-time high price that has not been surpassed for at least three months. I am looking for a strong stock that has traded at its all-time peak price and that has now rested, or consolidated, usually for less than a year. I then wait for the stock to close above the green line I drew. I often set an alert in TC2000 that will let me know when a specific stock trades above the green line I drew. I next look to see if the break-out is occurring on a volume of trading that is higher than normal over the recent past.

This weekly chart of DW shows a close in mid-May above its green line top (near 65.25, its all-time high reached  in late March) on the highest weekly trading volume in months. Note also that DW was climbing even when the QQQ (Nasdaq 100 index ETF) had experienced several declines. The amber vertical lines represent the end of market declines!  Thus DW showed incredible strength relative to QQQ, another great sign of buying interest and indicating that it might be a promising rocket stock. Like most people, my students come into the class thinking they should buy cheap stocks at new lows and hope to sell them higher. (Buy sheep and sell deer!) The successful traders I have studied do the opposite. They buy new highs and sell them when they move higher. A successful rocket must be pointing up and climbing with great thrust.

One way I  find promising stocks like DW is  each weekend I use TC2000 to scan for all stocks that have closed at a new 52 week high on Friday  and that traded a total number of shares that week that is at least 10% greater than its average weekly trading volume over the past few weeks and that traded at least 500,000 shares total for the week. This scan returned  only 27 stocks out of more than 4900 stocks that I found also traded at an all-time high. Nine of these  stocks closed above their last recent green line top (MELI, SHOP, CMN, MOMO, FOXF, INFO, ACGL, UNF, AOSL).

I am not suggesting that all GLB stocks work out. I will typically look at each company’s fundamentals and other relevant technical indicators to narrow down the list. After buying a GLB stock, I also must be vigilant and if the stock closes back below its green line or fails to climb consistently and rapidly like DW did, have planned exit strategies to sell out quickly and look for the next promising GLB stock. Every loss brings me closer to the next gain. To the right of this post is a link to a webinar I did in 2012 for TC2000 users. It provides more details about my trading methods. You also can sign up for my daily tweets and stock alerts: @wishingwealth. I often times tweet out a new GLB stock during the trading day.

For those of you on this blog site, you know I post a GLB tracker table to the right. This table shows stocks that recently had a green line break-out (GLB) to an all-time high. It computes a daily record of how the stock performed since its break-out day. To update it this weekend, I ran a scan of all stocks that hit an all-time high on Friday and then drew in each green line top–a peak price not surpassed for 3 or more months. If one of these stocks  had a GLB since August and met my scan criteria outlined above, and I judged it worthy of following, I listed it in the tracker table with the starting price equal to the green line top that it broke through and the date. So this is a biased selection of stocks that recently had a successful GLB and went on to reach an all-time high on Friday. By definition, all of these stocks are above their last green line tops. We will now be able to monitor how many of these stocks perform well from today on. Here is a screen shot of the new GLB tracker table.  I currently own none of these stocks and this table is for educational purposes only.

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Below is this week’s GMI (General Market Index) table. My market indicators are all positive.

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10 reasons for a short term market decline–come back on Halloween?

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There are a number of factors suggesting that the current QQQ short term up-trend is about to end:

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  1. Daily Bollinger Bands are very narrow, indicating low volatility and an imminent break in one direction or the other;
  2. Daily MACD histograms are negative;
  3. Daily fast stochastic is below slow stochastic;
  4. After many weeks, QQQ has closed below 10 day and 4 week averages;
  5. 2nd quarter earnings are mostly out–post-earnings lull;
  6. On verge of weakest month of year–dreaded September;
  7. GMI2=4 and T2108 weakening;
  8. Growing anxiety over a possible Fed hike in September, and November election;
  9. Sell in May, come back on Halloween;
  10. Completed 37 days of QQQ short term up-trend.

Time for me to raise sell stops and be defensive— until Mr. Market tips his hand…..

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