GMI: 3; GMI-R: 6; Day 2 of QQQQ up-trend; CPST–a Judy’s pick
The GMI is still 3 (of 6) but the GMI-R fell one, to 6 (of 10). This is because there were only 27 new highs and 28 new lows in my universe of 4,000 stocks on Wednesday. The indicators in the GMI have kept me out of all major market declines since 1995, including the bad markets of 2001-2002. I then got back in the market in 2003 and my account was up over 50% that year. I also avoided the decline that began last January, which lasted 55 days. The new QQQQ short term up-trend is in its second day and I am beginning to wade into this market slowly by buying QLD and writing some covered calls. If this up-trend should end quickly, I will get out and go immediately to cash again. There is always time to catch a real up-trend that can last months…….
The service that I use to scan stocks for writing covered calls is at www.poweropt.com. I like this service because I can narrow down my scan to include only IBD100 stocks. The IBD100 stocks include the strongest stocks based on fundamentals and technical action as assessed by IBD. I also eliminate stocks that will report earnings during the option period. I was burned several times by writing covered calls on stocks that announced earnings and then plunged. In a market up-trend writing calls on growth stocks with large premiums is the easiest and least stressful way I have ever made money in the market. Joseph Hooper’s book educated me about this new way to look at writing covered calls for income. While I do not follow his method of stocks selection and technical analysis, I do like his philosophy of writing near month covered calls for 3-5% income each month. I do all of this trading in my IRA and do not have to worry about taxes. Check it out…
My friend Judy, who is the best stock picker I have met, buys stocks based on concepts long before the technical action meets my requirements.
When she told me about this stock that she bought for about $1 per share, I told her I do not buy cheapies. But the stock has been rising, so I bought some around $2.09. CPST makes microturbine engines and appears to be getting a lot of contracts. If Judy likes a concept, it is good enough for me–as long as the chart looks good. This weekly chart shows that CPST is now holding well above its rising 10 week average (dotted line), which in turn is above its rising 30 week average (red line). As long as the stock holds above this dotted line, now at 1.73, I will hold the stock. This is not a recommendation, just an example of the chart pattern I look for and how I limit my risk. By the way, most recent volume spikes are occurring on up weeks, suggesting strong buying. So, again, Judy buys at a price much lower than I do…
GMI: 3; GMI-R:7; New QQQQ up-trend; QLD and covered calls
The GMI is now at 3 and the GMI-R is at 7. February 27 was the last time the GMI was as high as 3. More important, Tuesday was the first day of a new short term up-trend in the QQQQ. The down-trend that just ended lasted 55 days. No one can accurately predict how long this new up-trend will last, but I have to trade with the trend. If this up-trend ends abruptly, I will just go back to cash. I trade in my IRA where there are no tax consequences from getting in and out of a position. And by using a deep discount broker, commissions are not a factor. I have therefore been buying the QLD, an ultra ETF that aims to move up (or fall) twice as much as the underlying QQQQ ETF (Nasdaq 100 index) moves. I have also started to buy some strong growth stocks and to write April calls on them. I am very happy to sell calls for a 3-6% premium for a one month period. Yes, I give up any appreciation in the stock above the strike price. But I will be very happy to make 3-5% each month on my portfolio. When one sells covered calls to speculators, one profits similar to the way that casinos do. I am taking money from persons who are gambling on a rise in the options I sell them. I use technical analysis and an option scanning service to identify stocks on which to write call options. I also only write calls that will expire within one month and take limited positions in any one stock. As always, however, the key to success is to trade consistent with the general market’s trend. I only write calls during a market up-trend. In future posts I will provide examples of some of these trades.
GMI: 0; GMI-R: 4; More new highs than lows; IBD100 new highs
The GMI (General Market Index) remains at zero (out of 6) but the GMI-R rose to 4 (of 10). All of the four very sensitive short term indicators I added to form the revised GMI are now positive. Another up day will begin to raise the original GMI. For the first time since February 27, there were more new highs than lows (55 vs. 35) in my universe of 4,000 stocks. 50% of the Nasdaq 100 stocks are now above their 30 day averages. The Worden T2108 indicator is now at 46%, well out of bottoming territory. Market tops usually occur when this indicator is around 80%. Monday was the 55th day of the current QQQQ down-trend, which may be about to end. There were 10 stocks on the IBD100 lists I have monitored the past year that hit a new high on Monday: LKQX, MA, PTNR, KEX, GEF, PCLN, GILD, AXYS, URBN, ISYS. This list may contain one or more of the new market leaders should this rally last.
GMI: O: GMI-R: 1; Window dressing rally?
The GMI remains at zero (of 6) and the GMI-R is one (of 10).
There were 24 new highs and 174 new lows on Thursday in my universe of 4,000 stocks. In spite of the fact that Thursday was the 54th day of the current QQQQ short term down-trend (D-54), there are some signs that the market may be strengthening. First, keep in mind that we are near the end of the first quarter when mutual funds are believed to buy strong stocks to appear in their portfolios when their end of quarter reports are released. Since these reports do not show the date of purchase, the fund managers can look especially smart, even though they may have held these winners only for a few days. Second, I remember how bear markets have ended over the past 40 years and that the first stocks that people feel more comfortable buying are the big name large cap stocks. Only after a new bull market is under way and people have some profits, do they feel confident to buy the more speculative stocks. The strength I am finding in the Dow 30 stocks may be reflecting such a bias. The Dow index closed above its 30 and 50 day averages on Thursday on the largest daily volume since its bounce off of the bottom on January 23rd, and a majority of the Dow’s components are now above their 30 day averages. In addition, the QQQQ is only .13 below its 30 day average, which it has closed below all 2008, since January 2nd. Two closes above that level will signal to me a likely change in trend in the Nasdaq 100 index and tech stocks in general. And pessimism is rampant, with the Investor’s Intelligence poll now showing more newsletters bearish than bullish (45% vs. 31%, rounded–source IBD) a very rare occurrence. And the Worden T2108 indicator has rebounded to 32%, up from 19% on March 10. Finally, 56% of the Nasdaq 100 and the S&P 500 stocks have a MACD (12/30/9) that has closed above its signal line, up from below 20% on March 10.
All of these indicators suggest to me that this is not the time for me to take on new short positions. If I were short, I would place close buy stops on my positions to limit losses. Rather, I am prepared to slowly accumulate the ultra long ETF’s on the Dow (DDM), S&P 500 (SSO) or the NASDAQ 100 (QLD) indexes if their key moving averages are broached this week. Nevertheless, I have learned from trading all of these years that it does not pay to try to anticipate changes in trend. It is much safer and more profitable to wait for a confirmation that the up-trend has begun. A GMI reading above 3 would encourage me to go long. A failure to penetrate and hold the key levels I have noted would be a sign for me to move into the comparable ultra short ETFs (DXD, SDS and QID).
GMI: 0; GMI-R: 0; 53rd day of QQQQ down-trend
The GMI and GMI-R are both zero again. There were 37 new highs and 117 new lows in my universe of 4,000 stocks on Tuesday. The Worden T2108 indicator is back to 26% The trend remains down and it is crucial to remain in cash or to be short. Fighting this down-trend is an experiment in masochism. Remember, contrary to the media pundits who want to scare us into holding stocks, when the real turn comes, there will be plenty of time to jump on for the ride. Meanwhile, Tuesday was the 53rd day of the current down-trend, and many bear markets have lasted 9-12 months.
GMI: 0; GMI-R: 2;
The GMI remains at zero, but the more sensitive GMI-R rose to two. There were 31 new highs and 124 new lows in my universe of 4,000 stocks on Tuesday. Tuesday was the 52nd day of the current QQQQ short term down-trend.
GMI: 0; GMI-R: 0; 51st day of QQQQ down-trend
The GMI and GMI-R are back to zero. DGLY broke down on Monday, showing how promising bases tend to fail in a down-trend. Monday was the 51st day of the current QQQQ short term down-trend.
GMI: 1; GMI-R: 1; 50th day of QQQQ down-trend; DGLY, cup-with-handle?
The GMI is one (of 6) and the GMI-R is one (0f 10). Friday was the 50th day of the current short term QQQQ down-trend. On Friday, there were 64 new highs and 304 new lows in my universe of 4,000 stocks. The number of new lows remains fewer than the number reached the prior Friday ( 504) and last January at the lows (1,453). The Worden T2108 indicator is at 27%, above the low reading of 19% on March 10. A reading of 19% is low enough to maybe constitute a market bottom, at least for now. 24% of the Nasdaq 100 stocks closed Friday above their 30 day averages, up from 10% on Wednesday. On January 23rd this statistic bottomed out at 10% with the market. So, in spite of the volatility we experienced last week, the market seems to be holding. But with the GMI and GMI-R at one, the Nasdaq 100 index remains in a confirmed down-trend, now in its 50th day. Since I labeled this down-trend on January 3, the QQQQ has declined 16.5%. During that time, 82% of the Nasdaq 100 stocks have declined, as have 78% of the S&P 500 stocks and 83% of the Dow 30 stocks. It clearly does not pay to fight the market trend! I either go short in a down-trend or stay safely in cash.
Still, I cannot resist looking for the next possible rocket stock to break out if this market should strengthen later this month (see my prior post). I scanned the market using TC2007 this weekend and discovered a stock that appears to be forming a nice cup-with-handle base (outlined in yellow) after a sharp up-trend.
(Click on chart to enlarge.) If DGLY should trade above the pivot point (about 7.85) with a large increase in volume, I just might be tempted to take a chance. I found an article that talked about the company’s huge recent increase in sales and have added this company to my watch-list. In this market environment, it will pay to wait for a high volume breakout before I bite.
GMI: 1; GMI-R: 2; Rally coming?
The GMI is now one, and the GMI-R is two. There are signs that a rally may be on the horizon. First, we are approaching the end of the first quarter and we can expect the mutual fund "window dressing" to boost the strongest stocks in the next two weeks. Why? Because each mutual fund quarterly report can show the presence of a stock in its portfolio without showing the date it was purchased. Thus, the fund manager looks like a genius who has held the winners for the entire quarter, instead of only days. Second, it is very rare for the Investor’s Intelligence poll to show more newsletters being bearish than bullish, but that is exactly the case now, and tends to happen near bottoms. Third, the MACD for the QQQQ index is showing a huge bullish divergence–the MACD failed to decline during Monday’s lower index low, to anywhere near as low as it (the MACD) reached in January’s decline. Fourth, the Worden T2108 indicator is now at 35%, up from 19% on Monday. And fifth, the percentage of Nasdaq 100 and S&P 500 stocks that are above their MACD signal line has been rising, suggesting at least near term strength in these stocks…
A lot of stocks I have been watching (RIMM, DAR, FDG, MOS, POT, CF, RRC, UPL) bounced off of support on Thursday. I may purchase some of these and place stops below Thursday’s lows. I already own FDG.
GMI: 0; GMI-R: 0; 47th day of QQQQ down-trend
In spite of the rally on Tuesday, the GMI and GMI-R remain at zero. There were 21 new highs and 227 new lows in my universe of 4,000 stocks on Tuesday. The Worden T2108 indicator rose to 32%. All major indexes remain in a down-trend.