General Market Index (GMI) table

I began seriously following the market around 1964. I remember at one investors meeting I attended, people were complaining about the decline in 1962 after what some called the Kennedy Slide. In 1966, 1970, and 1974, I witnessed other declines, especially the large one in 1974 while I was in graduate school. People back then talked to me about the coming new depression. Bear markets lasted for many months. There were also many years when the Dow was flat. Between 1965 and 1982, the Dow failed repeatedly to break 1000.  Once it did, it marched on to reach 10,000 in 1999. That was the roaring 90s. It then hit a top, not broken for 6 years and then went on to the dreaded 2007 top and ensuing decline. Check out a chart of the Dow , (not inflation adjusted) and you can see multiyear periods when the market went nowhere. These long periods of a flat market typically came after a period when the indexes hit all-time highs for many years, just like the present! We may have been spoiled and misled by an ever rising market.

No one knows when the current decline will end. I can tell you that the SPY, DIA and QQQ have each formed a green line top, having not surpassed their monthly peaks for at least three mounts. The last green line break-out to ATHs (GLB) occurred for the DIA and SPY  in November 2020, and in June 2020 for the QQQ. We will be back to a roaring trader’s market again when these indexes have another GLB to all-time highs, but it could be months or even years before that.

When I look back at my indicators from prior major market declines I conclude that the current decline may be just beginning. Compare the adjusted weekly GMMA chart for SPY in 2008 to that of the current decline. We are just beginning a weekly BWR pattern! This is a pattern where the shorter averages (red lines) are declining below the falling longer averages (blue lines) with a white space separating them.

SPY is not even in a full weekly BWR decline!

I could have shown other indexes or periods but they would have revealed similar patterns. Here is QQQ, just forming a weekly BWR pattern. Note the nice weekly RWB up-trend all of 2021. That is when trading was very profitable for many.

We have yet to see the panic that typically occurs near a market bottom. Many people now painfully realize that the market does not always rise but I think it unlikely that many people have sold yet. They are willing to buy and hope. When they give up on the market after it has declined much further and they never want to engage with it again we will probably have a bottom. As they say, the time to buy is when everyone is afraid to….(I modified the traditional quote in respect for the carnage in Ukraine)

Finally, my best objective indicator of an oversold market, T2108, is far from oversold. When it reaches below 10% most people will be scared of something, last time it was the pandemic, and it will make sense for me to hold my nose and buy just a little SPY, not individual stocks,  and accumulate it only on the way up after a bottom appears to be in place. Here is the monthly chart of T2108, currently at 27%.

I have also learned not to buy stocks when my GMI signal is Red, and especially when it is zero. The GMI turns Red when it declines below 3 for two consecutive days and turns Green when it closes above 3 for two consecutive days. I am glad I am in cash, and have empathy for those who are being harmed by the current decline. However, it is best not to become too attached to a market scenario. If my indicators should reverse, I will too.

Too many times I have seen the market plunge after a Stage 4 decline became evident. It is therefore possible that we have only seen the beginning of a major decline. No one knows when a decline will end. So for me it makes sense to be in cash and to wait for a clear Stage 2 up-trend to develop. I have been trading/investing since 1964 and have seen many major declines. I wrote last November that I was exiting the markets. There is plenty of time to make $$$ when my GMI (see table) turns Green again…..

Here is the weekly chart of QQQ. Note the failed attempt to retake the 30 week average (solid red line). Note the prior Stage 2 up-trend (closes above a rising 30 week average) when it was easy to make money trading on the long side. I tell my students if they are only long stocks and/or the market index ETFs when they are in Stage 2 up-trends they should do fine. The Worden T2108 indicator is at 39% (see table). Bottoms of declines typically occur when T2108 reaches single digits. We are a long way from that. Don’t fight the tide.

I cannot see any reason to be invested long in the traditional growth and tech stocks. Why fight the receding tide? The purple line in this weekly chart of QQQ shows a possible place where this index could find support. It looks to me like a very weak head and shoulders top pattern has formed. I have to note that after the 30 week average (red solid line) has begun to decline it has often signaled the BEGINNING of a huge decline. When the 30 week average declines it means the current price is lower than the one 31 weeks ago that is being dropped from the moving average.

It is critical not to marry a scenario, however, and to remain flexible. Follow the trend don’t try to predict it. The sentiment is so bearish right now with everybody fearing the Fed’s tightening. And yet the market never behaves consistent with the majority’s opinions. I am glad I went to cash in my pension accounts starting in November. I still nibble at a a few things in my trading iRA but I make small bets and run when a loss develops.

There are still many stocks hitting ATHs (all-time highs) in commodities, agriculture, oil drilling and defense. Here is a list of stocks that came up in my WeeklyGreenBar scan using TC2000. (I will eventually make these scans available to others to run.) All of the stocks scanned came from my IBD/MarketSmith watchlist of stocks mentioned recently by these invaluable services. These stocks all bounced up off of their 4 week averages last week and had relative strength (vs S&P500) hit a 20 week high last week and all hit an ATH last week. For this setup I would sell if a stock trades back below last week’s low.

Here is an example of how I would trade this set-up. SRE has the powerful up-trend pattern of 4wk avg (red dotted line) rising above the 10 week avg (purple dotted line) which is rising above the 30 wk avg (red solid line). The latter is indicative of a Stage 2 up-trend. Last week’s price bar fell to just below/near the rising 4 wk avg and closed above it, and closed the week higher than the week before. This results in my green bar signal. (The prior week did not close higher than the week before and is therefore not green.) The fact that the stock also had a GLB (green line break-out to an ATH) is another plus but not required by this scan. A GLB signifies that a stock reached an ATH, consolidated for a minimum of 3 months and then broke out to a new ATH.

Please note this golden nugget: an advancing stock rides its rising 4 wk avg for many weeks. SRE has done so for the past 8 wks. How long will this advance last? No one knows. But if I owned SRE I would lighten up or sell all when it ends a week below its 4 wk avg. The final exit would come with a close below the 10 wk avg. I could also trail my stop at each subsequent green bar’s low.

The beauty of this technique is that one does not have to be glued to a monitor. One could purchase SRE on Monday (or before the close Friday), for example, put a stop loss order in to sell just below last week’s low and go about one’s business. The great Nicolas Darvas (whose books, listed below, are required reading) made his fortune while he was dancing around the world. Darvas could not watch his stocks when the markets were open. There were no computers then in the 50s and he did not contact his broker but got most of his stock information on the weekends from Barron’s magazine. The great William O’Neil relied on weekly charts too. Most of us do not want to be day traders. We just want to make a decent return over time and get on with our careers. SRE is just an example, I do not own it.

Here is one more example from the list above. Study it and learn.

The GMI remains on a Red signal, reflecting largely  the developing Stage 4 down-trend in QQQ. Everyone be careful.