The GMI flashed a buy signal on December 23rd, which is still in place. Since December 23rd, the QQQ has advanced +10.7%, the QLD +22.2% and the TQQQ +34.7%.  Meanwhile during the same period, only 12% of the Nasdaq 100 stocks and 11% of the S&P500 stocks have advanced 20% or more.  The 3X bullish semiconductor ETF, SOXL, rose +52.8% during this period.  The 3X leveraged ETF’s outperform almost all stocks and are much easier to select than individual stocks. I learn this lesson during each multi-week  up-trend. Why try to identify the rare stocks that will outperform a 3X ETF?!  Just pyramid up on the ETF.

I have many positions where I sold cash secured put options that should expire worthless in two weeks.  I will then look to open new covered call positions or sell new cash secured puts.

• gmi: 6
• gmi-2: 6
• t2108: 88

• gmi: 6
• gmi-2: 6
• t2108: 84

• gmi: 6
• gmi-2: 6
• t2108: 77

• gmi: 6
• gmi-2: 5
• t2108: 70

Meanwhile, the QQQ short term up-trend has now reached 4 days (U-4).  Nevertheless, the QQQ has closed below its critical 10 week average for 3 weeks.  In contrast, the SPY has closed above its 10 week average for 2 weeks.  So, the large cap index has been outperforming the tech stocks, for now.  The Worden T2108 indicator is at 56%, in neutral territory, and 72% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength. However, the daily stochastic for the QQQ is nearing the overbought range and I think this two week rebound from oversold may be coming to an end.  With the GMI-2 at 3, I remain cautious now with only a few hedged long positions.  My university pension still remains invested in mutual funds, for now.

If you want to see why I am  bearish on gold, take a look at this daily GMMA chart of GLD.

(Click on chart to enlarge.) Note that the short term averages (red) are far below the longer term averages (blue). Prior recent support levels have been broken. The multi-year up-trend has likely ended and I own a put option on GLD.

• gmi: 6
• gmi-2: 3
• t2108: 56

The QQQ reached a short term oversold level on December 19, and has bounced off of that level the past 4 days.  The QQQ is getting close to an overbought level, as measured by stochastics and Bollinger Band indicators I use.  I am therefore planning to move my stops up and/or write calls on my few long positions as soon as these indicators become over-bought. Over the past year, the QQQ has cycled between over-sold and over-bought. I am therefore not adding to any long positions right now.  I am still looking to short gold once the consolidation from the recent sharp drop is over.  This could take weeks.  Check out this weekly chart which shows GLD now firmly below its 30 week average (red line) and entering a major Stage 4 decline. Click on weekly chart to enlarge.

• gmi: 5
• gmi-2: 3
• t2108: 58

• gmi: 1
• gmi-2: 0
• t2108: 36

Meanwhile, the GMI remains at 6 (of 6) and the GMI-2 is at 5 (of 6).  The Worden T2108 is at 59%, in neutral territory.  78% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength.  Both the SPY and QQQ have now closed above their 10 week averages for two weeks. The QQQ daily stochastics reached an overbought level and recently that has led to a rapid decline.  The fact that the market held on Friday is a very positive sign.  Continued strength would signal to me a change in trend and a break out of the trading range it has been in.

My scan of stocks with good fundamentals that hit a new high on Friday yielded 13 out of more than 5,000 stocks: ORLY,ARG,DCI,HIBB,QCOR,CRMT,FICO,HSNI,SWI,DXPE,GNRC,HPY,SMP.  Four of these also came up in my DARVAS scan: QCOR,FICO,SWI,DXPE. These stocks are worth researching for possible buys. As this weekly GMMA chart shows, QCOR has been a powerful RWB rocket stock for some time. Click on chart to enlarge.

• gmi: 6
• gmi-2: 5
• t2108: 59

This is a major innovation in my trading.  Instead of trying to enter equities when they break out, I seek to enter when an equity is in a weekly Stage 2 up-trend and has become oversold on the daily time frame. I go long and then place a stop (or buy a put) just below support in case the decline resumes. I use TC2000 to scan the market for such opportunities.  There were plenty of bouncing oversold stocks when the market indexes were oversold.  Now there are few. So I will wait patiently until the indexes become oversold again…….

The market  rebounded last week from a very oversold point.  One never knows how far a rebound will go.  The key is to hold my QLD until there is a sign of a new decline or of an overbought point. Then I will sell the QLD or write a call option on it. Right now, the market does not appear to me to be overbought.  While the GMI is 5,   IBD still says that the market is  in a correction.  According to IBD’s methodology, there is no confirmed up-trend because there has been no high volume follow-through on this rally yet.  And by my count the QQQ completed the 11th day of its short term down-trend on Friday.  Nevertheless, as the daily chart of the QQQ below shows, the GMI flashed a new bullish signal (signal #13) on Thursday, using my new criterion (described in last Monday’s post) of needing 2 days with a GMI of at least 4 to signal a new up-trend. 58% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength.  Both the SPY and QQQ have now closed above their 10 week averages, a critical requirement for my trading profitably on the long side. The T2108 is at 62%, in neutral territory.

My stock buddy, Judy, told me recently she is focusing on stocks related to the transportation of liquified natural gas (LNG). The U.S. is apparently going to expand exporting LNG.  Interestingly, my scan of 5,000 U.S. stocks looking for stocks with good fundamentals and hitting new highs on Friday yielded 19 stocks, of which 6 (!) are involved with natural gas: NGLS, OKS, FTI, OII, SE and WPZ. Maybe Judy is onto something big, yet again!

• gmi: 5
• gmi-2: 5
• t2108: 62

The QQQ and SPY are now below their 10 week averages.  Only 3% of Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term weakness.  Daily new lows were more than six times more prevalent than new highs.  Only one stock has good fundamentals and has been repeatedly hitting new highs–ASPS.  I wrote about ASPS some time ago. I have a small long, fully  hedged position in ASPS………

Meanwhile, another powerful former market leader is entering a likely Stage 4 decline. While it is still too early to be certain, CMG closed last week below its 30 week average.  With the exception of one brief period last August, CMG has closed above its rising 30 week average since late 2009. During that time CMG has quadrupled. If its 10 week average should decline below the 30 week average, CMG may be a good short…..

While it has been my experience that the GMI gets me out of the market during major market declines, I thought I would take a systematic look at how the GMI has done recently in a very tough market period. I recorded on this daily chart  of the QQQ, each time the GMI signaled a change between bullish and bearish periods. I defined a bullish period as when the GMI closed at 4 or more (out of 6), and a bearish period when it closed below 4. I found that there were 12 trend changes since April 19.  I numbered each change on the chart and marked the beginning of a bullish period with a green asterisk and the start of a bearish period with a red asterisk. It is clear that the GMI turned bearish for most of the June decline (signal number 6) and the declines in August (8) and October (10).  Note that the current GMI signal is bearish (12). I also discovered that there were several signals of a  change in trend that lasted only one day (2 and 3; 5 and 6; 9 and 10). If I had used a rule that said that a change in trend had to persist for two days to be valid, I would have avoided these false signals.  I will use that rule  when I write about future changes in the market trend. Click on chart to enlarge.

I would be very interested in receiving your comments on my analysis of the GMI’s recent performance. One of my students is conducting a similar analysis over the past 5 years.

• gmi: 0
• gmi-2: 1
• t2108: 24