GMI: 1; Back Friday

The GMI remains at 1.  I am taking a couple of days off.  See you Friday morning. Stay safe and don’t fight the trend.

GMI: 1; More new highs than lows; Performance of GMI; Strongest IBD100 stocks

The GMI moved up  one, as the QQQQ Weekly Index turned "bearly" positive.  For the first time since July 23, there were more new highs than lows in my universe of 4,000 stocks (61 vs. 46), a promising sign.   Gmi0817 The Worden T2108 count of the percentage of all NYSE stocks closing above their 40 day averages has now rebounded from an extreme low reading of 8% to 16%.  Finally, the SPY and DIA have now closed below their 10 week averages for 4 consecutive weeks.  I have written before that I am much more successful buying growth stocks when the QQQQ is above its 10 week average.  Only one of the 16 short term indicators for the IJR, DIA, SPY and QQQQ is positive (GMI-S: 6%) .  Friday was the 15th day in the current QQQQ short term down-trend.

A reader asked me to post a chart of the recent performance of the GMI.  There is no magic to the GMI.  It is merely a count of the six market characteristics that I find useful for tracking the current trend.  These indicators have helped me to survive in the market and have kept me out of all major market declines since 1994. Gmiperform0817 Remember that I am a chicken.  I have no problem going entirely into cash and waiting for the storm clouds to clear.  I typically start to exit the long side of the market when the GMI falls below 4 and to buy once it climbs back above 3.  I refuse to own stocks when the GMI is low.  I do not fight the tide. The GMI measures only  the behavior of the markets and not what people think or hope will happen. At the close of the day of the sudden drop in February, the GMI registered 1 (down from 6) and stayed below 4 until March 21. From March 21 through July 24, the GMI registered between 4-6, but mostly 5 or 6. During this period the market rose about 11% and I had much success trading on the long side and writing covered calls.  The GMI fell to 3 at the close on July 25th and has been below 4 since then. So, I have escaped the latest carnage……

The great trader, Jesse Livermore, refused to label a market bear or bull.  He said that these terms have too much baggage regarding longevity and size of a move.  He asserted that he could only characterize the current trend of the market.  I agree with Jesse’s opinion.  The market appears to me to be in a down-trend and it remains so until the GMI rises to 4.  I understand how difficult it is for people to refrain from buying or holding stocks even when the odds are against them.  It took me a very long time to learn to respect the trend of the market and not to fight it. (I used to profit in the up-trend and give it all back and more in the subsequent decline.) This is THE KEY to successful trading…..

While this is not the time for me to buy stocks, I find that declines offer the best opportunity to find the next winners.  The few stocks that can resist the market decline tend to become stars. While 80% of the 440 IBD100 stocks I monitor have declined since July 19, the following are the ten biggest gainers: ISRG +33%, HMSY +32%, MORN +26%, ANSS +24%, BLUD +22%, GMCR +21%, RADS +20%, FSTR +19%, NVT +18% and SMDI +18%.  Some of these may be among the best stocks for me to focus on when the market turns…..

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GMI: 0; 8 new highs and 556 new lows; Shame on Cramer

The GMI remains at zero and there were 556 new lows and 8 new highs in my universe of 4,000 stocks. The market was in a free-fall Thursday and it looks like a bounce is here.  Cramer and all of the pundits keep telling viewers how to keep their money at work.  Everyone has that special stock that will buck the trend.  But since the QQQQ topped on July 19, it has fallen 9.7%  and 89% of the 412 IBD100 stocks I monitor declined, along with 88% of the Nasdaq 100 stocks and 95% of the S&P 500 stocks.  With odds like these, why try to pick the few stocks that will rise.  Instead, I go to cash and earn interest and/or buy puts or the ultra inverse ETFs.  Cramer was disingenuous Thursday night when he said that persons who went to cash in 1987 or 1998 would have lost thousands of Dow point rises in the following bull markets.  Does he really think that a person who sold out in 1987 or 1998 would have stayed out of all of the subsequent market rises????????  Shame on Cramer and all of the pundits who advise people to ride these storms out.   There is nothing like being on the sidelines during declines like this.  I prefer to wait for the all-clear (from the GMI)  before jumping on the next meaningful up-trend.

See my disclaimers below.

GMI: 0; Fed rate cut imminent?

The GMI is at zero for the first time since 7/20/06.  Gmi0815 There were only 7 new highs and 354 new lows in my universe of 4,000 stocks. Wednesday was the 13th day (D-13) in the current QQQQ down-trend. The Worden T2108 indicator slipped to 8%, near the most extreme levels seen at market declines. (See my prior post.)  Even the long term indicators have weakened, with the GMI-L now at 50%. 

The short term interest rate indicator has shown a remarkable decline the past few days.  This indicator often foreshadows moves by the Federal Reserve.  I think the indicator is telegraphing an imminent rate cut by the Fed. Irxx0815 A rate cut would cause a vigorous snap back market rally,  but such rallies do not necessarily become the permanent market bottom.  It can take a while for lower rates to revive the economy and the market.

For me, the best place to be is in cash and a little short the major indexes. This is no time for heroes.

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GMI: 1; Worden T2108: 11% and near bottom range; perilous market

GMI remains at 1 and has been flashing a sell signal below 4 since the close on July 25.    There were only 8 new highs and 189 new lows in my universe of 4000 stocks on Tuesday.  This is not the time to buy growth stocks hoping that they will surge to new highs.   This is the worst reading I have seen since June 14, 2006.  I rarely see fewer than 10 new 52 week highs in a day.  The Worden T2108 indicator showed just 11% of NYSE stocks above their 40 day averages.  This is definitely bottoming area.  The worst declines have gotten down around 6-7%.  Extreme readings at major bottoms occurred  in 1987, at <1%  in 1990 at  5%, 1994 at  7.7%, 1998 8.5%, 2001 at 6.8%.  It may be worth nibbling at index ETF’s if this indicator falls to 7%.  But I try not to anticipate the market and prefer to wait for the right sign of a turn. This market looks very perilous right now. 

GMI: 1; Hysteria Reigns; Serenely in cash

When I listen to the media pundits, I think the sky is falling.  But when I look at my charts, I see only a puny decline, thus far.  Could it be that the self-serving speculators and powers-that-be are hyping the market decline so that the government will bail them out? 

The market is actually in relatively fine shape at the moment. Stage2  The QQQQ and DIA remain above their rising 30 week averages.  Compare the current decline in the QQQQ with what happened last summer.  The pundits weren’t screaming bloody murder in 2006! Yes, the IJR and SPY are now below their 30 week averages, but those averages are still rising and both indexes appear to have found support at their 50 week averages where they stopped declining last summer.  As Stan Weinstein so masterfully demonstrated in his book cited to the right, real declines occur when these indexes are below their declining 30 week averages.  (That pattern in the QQQQ sent me to cash in October 2000.) While the short term trend is down (GMI-S: 6%), the majority of my long term indicators for the SPY, QQQQ, IJR and DIA remain positive (GMI-L: 63%). Yes, things can always get worse.  But I am content to wait to see if stocks can hold their 30 and/or 50 week averages.

You probably are thinking that I am missing the carnage because the QQQQ omits financials. Stage2spy  So let’s look at the SPY, which has been weaker than the QQQQ. Can you honestly look at this weekly chart of the SPY and see an atypical decline?  The SPY is sitting just below its 30 week average (red line) and above its 50 week average (green) near where it has found support in the past.  Compare the current decline to that in 2006 or even 2005.  I see a pattern of higher lows and rising moving averages.

So, I must conclude either that the current cries of doom are coming from persons who are much more perceptive about the true economic fundamentals than I am, or from persons who will benefit by a government bail-out, or both.  Don’t get me wrong, things may get worse.  But right now the market is just in an ordinary decline, and with the GMI at 1, I will remain serenely on the sidelines, mainly in cash.

GMI: 2; GMI-S: 0; Safely in cash

The GMI remains at 2 and the short term GMI-S is at 0.  I am safely in cash. There is no reason to trade in this market.  I will just sit back and wait for the GMI to signal an up-turn.  The Worden T2108 indicator is back to 20. Thursday was the ninth day in the current QQQQ down-trend and the index  is now below its 10 week average.  I have the best odds of making money on the long side when the QQQQ is consistently above its 10 week average. 

GMI: 2; Cash is king

The GMI moved up one to 2, as there were 107 new 52 week highs in my universe of 4,000 stocks.  While the short term trend of the QQQQ (and the SPY and DIA) remains down, the quality of the current rally in the next few days will tell me whether the trend is reversing up.  Cash is probably the right place for me to be right now.

GMI:1; 10x more new lows than highs

The GMI is still one and the GMI-S is zero.  There were 557 new lows and 52 new highs on Monday in my universe of 4,000 stocks.  While 78-97% of the stocks in the major indexes advanced, only 60% of my universe of stocks rose, along with just 56% of the stocks in the twelve IBD100 stock lists I have been following for the past year. So the advance Monday occurred mainly in the stocks typified by the major index ETFs (SPY, DIA and QQQQ).  The Worden T2108 indicator is 18%, up from Friday’s extreme low of 14%.  Monday was the sixth day in the current QQQQ down-trend.  I continue to be short or in cash until the GMI should signal an up-trend.

See my disclaimers below.

GMI: 1; UltraShort ETFs shine

Last week I received an email from my brokerage company saying that they noticed my account was in cash and, would I like their help in investing my money.  I have been safely in money market funds collecting interest, and they want to lure me back into this declining market.  The little guy doesn’t have a chance against the army of pros who think timing the market is impossible.  The Fox business shows on Sunday were also filled with pundits saying that we should scoop up the many bargains in this market. So, with the GMI at 1 and the majority of pundits looking for bargains, this is not the time for me to be long stocks….

I ran a scan using TC2007 to see which ETF’s did well since the S&P500 peaked on July 16.  Since that day, the S&P500 has declined  7.5%.  Was I surprised that in that same period a lot of Proshares UltraShort ETF’s climbed more than 20%.  These new inverse ETF’s go up when their relevant index declines.  The UltraShort ETF’s are designed to rise 2x as much as the relevant index falls.  So, look at the top 10 ETF’s (out of 551) since July 16:

It should be clear that during the time when the general market indexes were falling 5-7%, these UltraShort indexes rose 20% or more.  The weakness in real estate, basic materials and financials is to be expected. Toptenetfs But note that the market really stuck it to the "value" stocks.  This term is an oxymoron; value is a myth and only in the eyes of the beholder.  We should not get stuck holding onto declining value stocks, which may become even more valuable as they fall and fall and fall.  Bill O’Neil has said, all stocks are bad unless they are going up.  So, if I do not have  a margin account in which to short stocks or do not want to buy put options in my IRA, I can buy the UltraShort ETF’s and hopefully profit as other long term buy and hold investors wring their hands and curse the declining market.  Thus far, my IRA account has come through this decline unscathed, retaining all profits from the past year.

When will this decline end?  Nobody knows. But there will be plenty of time to go long after the turn is reflected in the GMI….

See my disclaimers below. 



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