GMI: 0; GMI-R: 0; only 34 new lows; 15th day of QQQQ down-trend

My GMI indicators remain at zero, but there were only 34 new lows and 15 new highs in my universe of 4,000 stocks on Thursday.  This was the smallest number of new lows since December 10. Thursday was the 15th day in the current QQQQ short term down-trend.  The Worden T2108 is back to 26%, up from a low of 18% on Tuesday.  While there is some improvement in my indicators from extremely low levels, it is too soon to determine whether a permanent bottom is in.  The trend is still down.  My best course is to remain on the sideline, mainly in cash. 

GMI:0; GMI-R: 0; patiently in cash

After seeing the major indexes the past few days, how can anyone believe that the stock market provides a rational and efficient process for valuing companies?  Psychology, not economics, is clearly the largest factor determining stock prices.  These large price swings are spawned  by fear and greed and it is too risky at this time to put one’s savings into this market . When the GMI (currently 0 out of 6) rises to 3 or more and the trend of the market is clearly up, I will consider re-entering this market.  It is relatively easy to make money buying stocks during a nice up-trend.  No one forces us into the market.  We all (except mutual fund managers) can refuse to play until the conditions we want are present.  Until then, I wait patiently in cash and collect interest.

GMI: 0; GMI-R: 0; 1,453 new lows; safely in cash– and patient

The GMI and GMI-R remain at zero.  The GMI flashed a sell signal at 2+ on January 2 and has remained at zero since January 4.  Gmiperf0122 (Click on chart to enlarge.) There were 1,453 new lows and 24 new highs in my universe of 4,000 stocks on Tuesday.  The percentage of Nasdaq 100 stocks closing above their 30 day averages is now 5%.  The Worden T2108 fell one to 18%.  Tuesday was the 13th day of the current QQQQ down-trend.  Only 13% of the stocks in my universe closed above their 10 week averages.  Some of these readings are the lowest I have seen in the past three years.

When I began this blog in 2005 I wrote that I was a chicken and had successfully avoided all significant market declines since 1995.  It appears that my indicators have kept me out again.  While I do not make recommendations on this blog I did tell you when I went to cash in my pension plan and in my trading IRA.  I hope that many of you looked at my indicators and also took actions to protect your funds.  The market signaled this decline weeks ago and if we heeded its warnings and ignored most of the "stay invested" media pundits it was possible to emerge unscathed.

The market will signal a bottom at some point and it is critical to concentrate on its behavior.  The trick is to wait for the turn and to wade in slowly.  Anticipating bottoms is a fruitless exercise.  I am very willing to miss quick short-term bounces and to wait for the signs of a real change in trend. When the GMI returns to 3 or 4 and the QQQQ is in an up-trend there will be ample time for me to profit from the rise.  In 2003 after the bear market my account gained over 50% in the market rise, without margin (not allowed in an IRA) or the use of options.  I have learned over the past 40 years that the secret of success is to be in the market (on the long side) only when the market is in a confirmed up-trend. So I will remain in cash now and monitor the IBD100 stocks for possible future leaders. (See yesterday’s post.)  As Jesse Livermore once said, the most money is made in the sitting, not in the trading…..

See my disclaimers at the bottom of yesterday’s post.

GMI: 0; GMI-R: 0; 12th day of down-trend, sucker rally near?; IBD100 holds winners

The GMI and GMI-R have been zero since January 4.  On Friday there were 844 new lows and just 10 new highs in my universe of 4,000 stocks. Gmi0118 This number was exceeded only by the 1,011 lows on January 9.  It was also the fewest number of new highs since August 28, near the lows of last summer’s decline.  Friday was the 12th day in the current QQQQ short term down-trend.  However, note that the QQQQ and SPY have closed below their 10 week averages for ten weeks.  I have written before that when these major indexes are below their ten week averages I rarely make money going long.  In fact, since November 8, when the QQQQ first closed below its 10 week average, the QQQQ has declined 12% and 82% of its 100 component stocks closed lower on Friday than on November 8; only 13% have advanced 1% or more.  During the same period 87% of the S&P500 stocks have declined. Can you see why it makes no sense to fight such odds?

So where do things stand now? It will take a long time for the indexes to rise above the critical moving averages I monitor. Nevertheless, the Worden T2108 indicator is in possible bottom territory at 19%.    And the averages are in an almost vertical decline.  These conditions may portend a bounce, especially with the Fed likely to act soon.  It doesn’t pay to fight the Fed.  The safest route, the one that lets me sleep at night, is the solution I quoted from Nicolas Darvas several posts ago–stay on the sideline and wait for the inevitable rise from the ashes, whenever that comes.  The odds of benefiting from a rally are much greater when the QQQQ is above its 10 week average, currently at 49.81, versus its close Friday at 45.35.  In other words , a rally would have to exceed about +10% for me to call a change in trend.  There is clearly a lot of room on the up-side for failed, sucker rallies.

Until the turn comes, I am keeping a watchlist of stocks that have resisted the decline.  I scan the IBD100 stocks for those close to their all-time highs and in an up-trend.  I let IBD do the tough work of ranking all stocks by fundamental and technical strength.  I then can focus on the top 100 stocks that they have identified.  Some skeptics have told me that the IBD100 list identifies winners too late.  Well, according to my sample of monthly lists of IBD100 stocks over the past two years, I found the following 2007 leaders showed up on at least one IBD100 stock list:  ISRG: 8/2007, 199.13 (high after this date: 339.63); AAPL: 10/2006, 54.44 (202.96); GOOG: 10/2005, 310.65 (747.24); BIDU:  5/2007, 131.99 (235.28); GRMN: 10/2006, 47.93 (125.68) .  If I had a complete list of the IBD 100 lists over the past years, I might find that some of these leaders were identified even earlier.

Now, I am not saying that all stocks that appear on the IBD100 list do well, they do not.  But I use the list as a starting point to find stocks that meet my technical specifications, with the comfort that the list contains the best stocks in the market, according to IBD’s systematic technical and fundamental criteria.  Stocks that weaken are quickly dropped from the list published each week by IBD.  Even in this declining market there are stocks on the IBD100 lists that are resisting the current down-trend.  I use TC2007 to find these stocks and to create a watchlist that may contain market leaders once the market turns.  The key is to wait for the turn and not to be seduced into them now when false moves are very likely.  Some of the 26 stocks that I am watching are:  HMSY, VIVO and SRCL.  Take a look at monthly and weekly charts of these stocks to get an idea of the types of technical patterns that I think are promising for purchasing a stock AFTER the beginning of an up-trend in the QQQQ.


GMI:0; GMI-R: 0; Worden T2108: 21%; In cash and puts

The GMI and GMI-R remain  at zero.  Thursday was the eleventh day in the current QQQQ short term down-trend.  There were 30 new highs and 578 new lows in my universe of 4,000 stocks on Thursday.  A lot of the new highs are being achieved by bond funds and the new inverse ETF’s that rise when the market falls.  Still, the number of new lows is a lot less than the 730 and 1,011 registered on January 8 and 9.  So the current decline is not driving as many stocks to new 52 week lows. The Worden T2108 indicator is at 21%, still above the level reached in recent bottoms.  The decline last August ended with the T2108 at 7.7% and the decline in June, 2006 ended with it at 13.6%.   T2108 is the percentage of NYSE stocks that closed above their 40 day moving averages…….

I made money today in the declining market as my put options gained.  I remain largely in cash though, given that the market could bounce strongly at anytime.  When the GMI rises to around 3, I will consider going long again, or I will add to my shorts after a failed rally.  Remember, no one can consistently predict when a trend will end.  We just have to wait for the turn to manifest itself.

GMI:0; GMI-R:0; 10th day of QQQQ decline, 441 new lows

Wednesday was the 10th day of the current decline in the QQQQ.  The GMI and GMI-R are both zero and there were 441 new lows and 38 new highs in my universe of 4,000 stocks on Wednesday.  The Worden T2108 indicator is 27%, still above the levels typical of past bottoms.  I remain in cash with a few puts in my IRA.

GMI:0; GMI-R:0; 9th day of QQQQ down-trend; Cramer says stay in the market for 20 years

Well, the GMI and GMI-R continue to register zero.  There were 500 new lows in my universe of 4,000 stocks on Tuesday, and 28 new highs.  On January 9, there were 1,011 new lows, so the current decline has not created as much damage thus far.  Nevertheless, since the start of this down-trend on January 3, the Nasdaq 100 index has fallen 8% and 83% of the Nasdaq 100 stocks have declined, 31% have declined 10% or more.  Ten of the stocks have fallen 18% or more, including past leaders such as RIMM, ISRG and GRMN.  You can see why it does not pay to fight the trend of the index (QQQQ).  It also shows the wisdom of using stop loss orders to preserve gains.  When the leaders like GOOG (-7%) and even AAPL (-13%) begin to falter it presents ominous signs for the rest of the market.

Nicolas Darvas was right when he wrote that it is folly to remain in a bear market and to thereby surrender one’s precious bull market profits (see my post on Darvas on last Monday, 1/14).  And what did Cramer say to his viewers tonight about the market?  Because there has never been a 20 year period when the market did not gain, people should remain in the market!  So, we should all stay in this market knowing that our money will probably be worth more in 20 years—masochists rejoice!

GMI:0; GMI-R:0; Earnings bounce; cash is king

The GMI and GMI-R remain at zero.  On Monday, there were 69 new highs and 189 new lows in my universe of 4,000 stocks.  Thank you for the nice comments about yesterday’s post about Nicolas Darvas.  It appears we are finally getting the earnings bounce.  The key is whether this rally in the QQQQ can break above the last peak at 52.63.  Monday’s rally came on relatively low volume and may turn out to be a dead cat bounce.  We may have to wait for earnings season to be completed before this market reveals itself.  The winning strategy for me is to react after a turn and not to anticipate one. For now, cash is king. 

GMI:0; GMI-R:0; Nicolas Darvas on staying clear of bear markets

The GMI and GMI-R remain at zero.  The down-trend in the QQQQ is in place. So, what to do when only 40 of the 4,000 stocks in my universe of stocks hit a new high on Friday while 232 hit new lows?  Friday was the 7th day in the current QQQQ short term down-trend and the GMI has been less than 3 for the past 8 days.  (Click on chart to enlarge.)Gmi0111 The GMI has registered zero for the past six days.  So, I have been telling you how I have been mainly in cash.  I only play when the odds are in  my favor.  So why do the media pundits, including Cramer,  continually look for stocks to buy?  Why are they looking for safe stocks in a rotten market?  I must assume they make no money and have no audience if the public stays away during bad markets.  It is because I was angry at how these mental midgets misled the public in the 2000-2002 debacle that I began this blog. I want to educate the little person as to how I have protected myself from the major market declines since 1995.

So, if you still are unconvinced, listen to what the genius trader, Nicolas Darvas said about bear markets.  Darvas, as you will recall from my favorite post on him (see bottom right), made a fortune in the bull market of the late 1950’s as he traded part-time and literally danced around the world.  In a rare sequel to his best-seller of 1960 (You Can Still Make It In The Market, published in 1977) , Darvas wrote about bear markets.  This book was written after Darvas had experienced the painful market declines in 1970 and 1974.

…..I like to be sure the odds are in my favor. If the market is in a down-trend and the industry group is performing weakly I know that the cards are stacked against me and that my chances of making big profits are poorer than if the market and the industry are strong.  You cannot be too careful in the stock market.  …………….There have been any number of stocks that have multiplied in price manyfold in a bear market, just as there are plenty of stocks that have hardly moved in a bull market.  But my temperament is such that I would rather be safe than sorry.  So I keep out in a bear market and leave such exceptional stocks to those who don’t mind risking their money against the market trend……………..

Many people seem to think they must always keep their money “working,” i.e. constantly invested in stocks.  But why remain invested in a bear market when everything is dropping? Why ride the market up and down and lose on the downside what you have so painstakenly made on the upside?……There are even some people who believe that a policy of “buy and hold” is the best, so they hang on through thick and thin.  Presumably they get some masochistic pleasure from seeing their capital melt before their eyes every two or three years in successive bear cycles, or they just close their eyes, grit their teeth, and sit it out.  With that sort of approach stock-market investment becomes a succession of nightmares.  I prefer to sleep soundly at night, even if it means going into cash for long periods.

Oh that we had more highly visible experts like Darvas, speaking accurately about the stock market! Instead the pundits of the day try to scare us into stocks, lest we miss the next rise.  But no one knows when the turn will come and there is plenty of time to jump on a real bull move.  So I sit on the sideline during this down-trend, comfortably in cash, and wait for the GMI and the market to turn………………

GMI:0; GMI-R: 0; 6th day of QQQQ down-trend

The GMI and GMI-R remain at zero.  Only 63 new highs and 285 new lows in my universe of 4,000 stocks on Friday.  Friday was the 6th day in the QQQQ short term down-trend.  Cramer thinks we have hit bottom–time will tell.  Only 17% of the Nasdaq 100 stocks closed above their 30 day averages.  The Worden T2108 indicator is at 36%.  I remain mainly in cash.

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