Bloody Fridays lead to bloody Mondays; GMI on verge of Sell but markets very over-sold

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It is at times like these when it helps me to look at longer term charts for perspective. This monthly chart of the QQQ back to 2000 shows that the current market is not yet showing signs of a major decline. (The DIA and SPY charts look similar.)

QQQmonthly09262016The QQQ would have to decline below recent support levels reached last February, around 94, to make me think this might turn into a bear. (I dismiss the prior “flash crash” low of August, 2015 as a man-made, contrived  aberration without technical significance.)

There are a few things making me think this market could bounce later this week. Bloody Fridays often lead to bloody Mondays as people look at their declining account balances over the weekend and sell stocks in a panic at the open. But three other signs make me think we may get a strong bounce: 1) the put/call ratio is at 1.17, a level denoting option traders’ extreme fear, which occurs typically at bounces/bottoms; 2) this week is end of quarter mutual fund window dressing when funds buy up the stronger stocks so their quarterly portfolio reports look good; and 3) on last Friday the most NASDAQ 100 stocks (66) traded at or below their lower 15.2 daily Bollinger Bands since the market bottom of last February.  Do these indicators guarantee a strong bounce next week? No, but I would not start selling Monday morning…………

The GMI is now at 2 (of 6) and will issue a Sell signal at Monday’s close unless the markets strengthen.

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$Z, $ATVI, $QQQ short term up-trend in jeopardy

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Now that I have returned from CA,  I want to review two stocks I have tweeted  about, Z and ATVI. This daily chart of Z shows that it broke through its green line top (GLB)  on Friday, on higher than average trading volume. Arrows show high volume, likely fund buying.

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This monthly chart shows that the green line was drawn at the peak reached in October, 2015. A recent IPO (initial public offering) that forms a top, consolidates for months and then breaks out to an all-time high can prove to be a rocket stock (For example, FB did a GLB at $45 at month 17). It is critical, however, that the break-out hold and that Z not fall back below its green line.  If it does, I will sell and then monitor the stock for support back above the green line. I like to re-enter a stock that rises after a failed break-out.

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Another stock that I tweeted about was ATVI. This daily chart shows that ATVI  failed its recent attempt at a GLB and found support at its lower 15.2 Bollinger Band and 30 day average (red line). With the weak market on Friday, ATVI closed below its 30 day average. I will exit if it closes below its lower Bollinger Band, around 37.

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Meanwhile this market is getting very weak. Without a strong up day Monday, the QQQ short term trend (U-17) will turn down and the GMI may issue a Sell signal. The only thing keeping me in this market is my expectation for a strong end of month and end of quarter rally with mutual fund window dressing. Also, the market indexes look very short term oversold to me. However, we may have to first get through the vote in Great Britain and that may totally destroy the chances for any end of quarter rally. So this is time for me to be very vigilant and to have an exit strategy in place.

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Modified Guppy charts for $SPY and $QQQ different; 2nd quarter mutual fund window dressing

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While my short and long term market trend indicators show an up-trend, my modified Guppy charts of the SPY and QQQ paint somewhat different pictures. My modified Guppy chart plots 6 shorter term and 6 longer term weekly exponential moving averages plus a dotted line showing each weekly close. This weekly chart of the SPY shows a clearly developed RWB up-trend. All shorter averages (red lines) are well above rising longer term averages (blue lines) with a white space separating them.

SPYguppy06102016The  chart of the QQQ is weaker, without a well defined RWB up-trend. The question remains, which index will lead the other?

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Nevertheless, the GMI remains at 6 (of 6).  The current decline may be setting up for a nice snap back rally as we get end of quarter mutual fund window dressing at the end of June. And then on to 2nd quarter earnings. So I am watching the popular growth stocks  for good entries and will tweet about stocks I think are bouncing on support (BOS). However, I will not post on this blog again until  Wednesday night.

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Introducing BOS alerts for my tweets; GMI at 6 (of 6); a Dr. Wish Favorite Post; BOS: $RTN

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The primary trading approach from my course on technical analysis that I teach undergraduates is contained in the following quote from yours truly:

ClasssloganI have for years been stressing the  break-out strategy at the end of this quote. (Who quotes himself?) Buying stocks breaking out of a base and through resistance is highlighted in the works of successful traders I have emulated, like Nicolas Darvas, Jesse Livermore and William O’Neil. (Their exceptional books are listed on this blog.) Each trader defines a base somewhat differently, however. For me, it is defined by a green line breakout (GLB).  I draw a green line on a monthly chart at a stock’s all-time high that has not been penetrated for 3 or more months. This defines an advancing stock that has rested or consolidated. I then become interested in the stock the moment it exceeds its green line top, preferably on unusually high trading volume. I set alerts on TC2000 to signal me when a GLB occurs. I have recently taken to tweeting GLB alerts intraday.  The major problem with GLBs is they often fail and equally important, it is not really easy to define in advance a price at which I think will indicate the break-out has failed and I should exit. I usually try to exit if the stock that has a GLB closes back below its green line. So many of the GLBs occur when the stock is overextended and it soon retraces and I get (rightly or wrongly) scared out.

Over the past couple of years I have developed an alternative set-up for buys that seems to work very well for me in an advancing market (GMI on a Buy signal or QQQ short term trend is up).  I actually like this strategy better than trading GLBs. As the first part of the quote above states, in an advancing market, I find a strong rocket stock that has become oversold and/or is on support. I programmed TC2000 to alert me when a stock meets my criteria (rocket stock and not extended)  if the stock trades up. (This set-up I label Bounce on Support, BOS.)  If I like the stock, I buy it and place an immediate sell stop order in below the bounce or the support level. I really like this approach because my stop or exit level is typically quite close to where I entered, so I likely risk little. I know that a good percentage of these entries will fail, but the name of the game is to lose very little when it fails, to exit quickly,  and to retain stocks that behave. I do not know in advance which BOS position will succeed. No one really knows that. So I take an unemotional and detached attitude, making my purchase, setting an immediate sell stop, and then letting the market decide whether I will profit or lose. This really is a succinct summary of where I come out after a 50 year journey of trading stocks.

I have newly embraced tweeting some of my stock alerts intraday. (If I begin tweeting, this mode of communication must have peaked!) You can sign up to receive my intraday tweets here: @WishingWealth.  My goal, as always, is to teach people how I systematically trade stocks and manage risk and not to make trading recommendations or to sell anything. I often have already researched a GLB or BOS stock long before I receive an alert. So I am ready to act. Many of my stocks come from the IBD 50 list. Everyone must design their own set-ups that are consistent with their tolerance for risk and financial situation. My tweets appear each day on my blog site, www.wishingwealthblog.com, but they come much quicker and directly to people who have signed up to follow me on twitter. So last week I tweeted that I bought RTN and placed a sell stop to exit if the stock traded back below 129. Take a look at the daily chart of RTN. RTN never looked back–yet…  Can you guess why it is a BOS?

Screen Shot 2016-06-05 at 3.14.20 PMI define support or oversold levels on the basis of a few criteria which I will not specify here. (Ask my undergraduate students!)  Just keep in mind that not every BOS will work out. When I tweet a BOS alert, I will also specify the price at which I think it would have failed and where I would place my stop loss order. When a BOS position succeeds, I must then decide where to raise my sell stop to. Sometimes I may not raise it at all, if I want to try and ride a strong stock that I have been waiting for an entry for, or to avoid being whipsawed. Other times I might raise my sell stop to a level that will likely prevent a gain from turning into a loss. This is where science ends and the art of the trade begins….

Friday was the 7th day of the new $QQQ short term up-trend and the General Market Index (GMI) remains at 6 (of 6). As long as my market indicators stay positive I will tweet some of my alerts for GLBs and BOS. By the way, you can check out the performance of selected recent GLB alert stocks on the right of my blog page. Many are doing well, as the market is in an up-trend.

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3rd day of $QQQ short term up-trend; catch my intraday tweets; GLB: $WB

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I have started to tweet alerts that I get during the trading day. My tweets are designed to be educational and not trading recommendations. My tweets are also listed to the right of this post (@wishingwealth). I am showing you how I  identify Green line Breakouts (GLB) during the trading day. I do not buy all GLBs that come up. If I do buy a GLB, I usually sell immediately if the stock looks like it will close back below the green line. I draw a green line at the highest all-time price a stock has traded at and not surpassed for at least three months. Basically it identifies a strong stock that has rested for at least 3 months and then breaks above its green line top. A list of some GLBs appears in the table to  the right. GLBs tend to work best when the market is climbing higher. Now that the GMI is on a recent Buy signal, I am looking for GLBs to buy.

Below is a daily chart of WB, which I tweeted (and purchased) on Friday. I like the fact that it broke out on above average volume but will sell it mercilessly if it comes back below the green line. The first loss is the smallest loss…

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The GMI (general market index) remains at 6 (of 6).

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$DIA and $QQQ still struggling; GMI still at zero (of 6); mainly in cash

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Friday was the 19th day of the QQQ short term down-trend, within a longer term down-trend. The Dow 30 stocks, measured by the ETF, DIA, is weaker than the QQQ. Note in this daily Guppy chart that the DIA is lower than all 12 daily moving averages. The dotted line is the weekly close of the DIA. The dotted line tends to lead the averages. The shorter term red averages are declining and if they create a BWR (blue/white/red) pattern the market will be in another swoon. Note the preceding RWB advancing pattern.

DIAdailyguppyThe QQQ is showing a little more strength, but it remains in a BWR down-trend. . While it closed Friday below all of the blue (longer term) averages, the QQQ has climbed above all of its red (shorter term) averages. It has done this 2 times in the recent past and each attempt has failed to climb above the blue lines. A close of the QQQ above all of the blue lines (around 106.92) would be a strong show of strength and might signal the end of the BWR pattern. Stay tuned….

DIAdguppyMeanwhile the GMI remains at zero (of 6). I remain on the sidelines, mainly in cash…..

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Daily Guppy charts of $QQQ and T2108 turn negative; GMI turns 0 (of 6)–mainly in cash

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All six of the primary indicators counted in the GMI are negative (see GMI table at bottom). The only  positive sign I see is that the put/call ratio on Friday, a contrary indicator now indicating many option traders are bearish, suggests that we could get a quick short term bounce on Monday.  But these  modified daily Guppy charts of QQQ (Nasdaq 100 ETF) and T2108 (a measure of the % of NYSE stocks that closed above their  average price over the past 40 days) suggest that these indicators are turning down. These daily Guppy charts show that the  shorter term averages (red) are moving below the longer term averages (blue). Until these averages return to a rising RWB (red/white/blue) pattern, I believe the trend is down.

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Here is the GMI table. A GMI reading of zero is for me, a sign of  significant market weakness. Note the SPY has now closed below its 10 week average, joining the QQQ. I am a chicken trader and therefore am now mainly in cash in my trading accounts with a small position in SQQQ, a leveraged ETF which is designed to rise 3X as much as the QQQ falls. My first priority is to conserve capital so that I live to trade another day…

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