GMI declines to +5; only 27% of stocks in up-trend; Cramer commits hara-kiri over DKS; a polar bear?
Well, it did not take long to see where all of this short term weakness is headed. I said in my post on Sunday night that during my 2 week vacation my short term market indicators had weakened considerably. And now, as of Tuesday’s close, only 27% of the stocks in my universe are in a short term up-trend, down from 61% on 7/29, and 68% at the peak on 7/14. This indicator had never fallen below 40% since I started tracking it at the end of June. At the bottom of the QQQQ decline on July 7, this indicator registered 48%. In other words, the market weakness we are seeing now– near the beginning of a decline– is greater than we saw at the end of the previous decline–something to ponder.
The GMI declined Tuesday because there were only 59 new yearly highs. While there were 122 successful 10 day new highs, this represented only 24% of all of the 511 stocks (in my universe of 4,000) that hit new highs 10 days ago. Clearly, buying stocks at new highs 10 days ago has not worked out well, if one held on to them. My favorite gurus (see Boik’s book at right) have written that when stocks breaking to new highs fail, it portends general market weakness–as if we need more evidence. There were 28 new lows Tuesday, highest since July 7. Only 8% of the Nasdaq 100 and S&P 500 stocks advanced , along with 13% (4) of the Dow 30. Only 53% of stocks closed above their 10 week averages, down from 83% on July 20………………………
Cramer committed hara-kiri (I looked it up!) Tuesday night over his recommendation on DKS, which fell 16%. He also fessed up to recommending ANF (-3.65%). I give him a lot of credit. How many of the talking heads ever come back quickly to discuss their ill founded advice? However, I think Cramer exemplifies the hazards of eschewing charting and technical analysis. If one makes his decisions based solely on earnings, industries and assessments of economic trends, one can get trapped in losing situations. I hate to be a told-you-so, (no I don’t) but if Cramer had been following my rule of not buying stocks when their 10 day average is below their 30 day average, he and his followers could have avoided this catastrophe. 
This "Naked Chart" shows that DKS had a negative crossover of its moving averages last Wednesday. Moreover, the QQQQ has been weakening for several days (8 straight closes below its 10 day average) and he should have been raising cash and becoming defensive, rather than recommending new purchases. Last night, Cramer’s only rec was Wachovia Bank (WB), because it is boring and pays a dividend. Technically, it looks sick to me……………….
LUFK and BBY both had failed bounces and I was stopped out of them Tuesday with small losses. I love to buy on a bounce and place a sell stop just below the bounce. I end up with very small losses when I am wrong. But my puts made $$ yesterday. Stocks I mentioned in my prior post weakened nicely, including HD, the QQQQ ETF and housing stocks. Even GM is slowly tanking–wonder why? I have only one long, FTO, and I suspect I will be stopped out today. Isn’t it interesting that even oil stocks declined Tuesday. People don’t use as much oil in a weakened economy. And the people I have talked to seem to be increasingly reacting to the high gasoline prices. Ask folks around you. We will probably see the negative economic effects first in the retailers like WMT, which caters to customers at the lower socioeconomic levels, but the higher oil prices may affect more of us in the coming winter when we get our heating bills. Maybe we should expect a polar bear market?
I don’t want to appear too bearish. Only my short term indicators are weak. I have no reason to suspect a longer term decline–yet. Another down day today will reduce the GMI two more points, to 3. It would have to go all the way to zero for me to become really bearish. For now I will simply ride this short term decline.
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Monday was better; GMI: +6; CME and GOOG decline; negative trends in housing; FTO, LUFK
Monday was a better day and the short term stats improved a little. The GMI remains at +6. There were 166 successful 10 day new highs and 138 new yearly highs. There were only 21 new lows in my universe of 4,000 stocks. 
While the percentage of stocks above their 10 week averages increased 2 points to 62%, the percentage in a short term up trend declined 2 to 32%. Between 63%-67% of the Nasdaq 100, S&P 500 and Dow 30 stocks advanced Monday. The DIA and SPY climbed back above their 10 day averages–a good sign. The QQQQ closed just below (.06) its 10 day. Today is a very important day. If these indexes close below their 10 day I will become more defensive and it will probably only be a short time before the GMI begins to decline. The key is not to become too bearish as long as the GMI holds. There is plenty of time for me to go short after the GMI gives the proper signal.
Sunday night I mentioned that CME and GOOG appeared to be weakening. CME cracked Monday, down 18.96 (-6.5%) and GOOG fell 5.72 (-1.9%). I don’t like to see the leaders weaken. Many of the gurus I admire (see Boik’s book at right) have said that after the leaders of the market crack, the whole market is likely to decline. So I am waiting with a mixture of longs and puts in my IRA. LUFK and FTO were strong on Monday, and BBY may be bouncing (I own these.) Note also that some of the housing stocks (for example PHM, TOL, HOV) are showing a negative cross-over of their 10 day average below their 30 day average, for the first time in months. In a few days we will know whether the short term weakening we are seeing will lead to a larger decline, or a resumption of the general market’s advance. Have a good day.
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Back from vacation; GMI still +6; WPM shows below surface weakening; Many bearish cross-overs among leaders; Buying puts
I’m back from vacation—and suffering from jet lag. But I think it is important to update the GMI and the WPM. The GMI has not changed since my last post on 7/29 and remains at +6. However, there are a number of critical signs of weakness in the markets. 
While there were 159 successful 10 day new highs on Friday, only 35% of the 452 stocks that hit a new high 10 days earlier closed higher on Friday than 10 days earlier. The 142 new yearly highs in my universe of 4,000 stocks was the least since there were 130 on July 18. The SPY, QQQQ, and growth mutual fun indicators remain positive. However, only 59% of stocks closed above their 10 week averages, down from 79% on 7/29 and the percentage of stocks in a short term up-trend declined from 61% to 34%. Unfortunately, I did not track these indicators the past 2 weeks and cannot estimate the timing of these declines. The QQQQ up trend is in its 26th day. However, this index has closed below its 10 day average for the past 6 trading days. Since this QQQQ rally began on July 8, the index never closed below its 10 day average–until beginning, August 5. This is a sign that the QQQQ rally has weakened.
This table of the WPM shows what is going on beneath the indexes. 
While the 5 indexes have remained above their critical 30 day and 30 week moving averages, there has been marked short term deterioration within each of the 5 indexes since I first posted the WPM on 7/22. For example, only 48% of the S&P 500 stocks are now above their 30 day averages, down from 75%. In fact, only 42%-50% of the stocks in these 5 indexes closed above their 30 day averages on Friday, compared with 60%-80% on 7/22. There was little change in the percentage of the stocks in these indexes that remained above their longer term 30 week averages, with the exception of the lagging DIA, which strengthened (57% vs. 47%).
Putting it all together, while the longer term up trend seems to be intact, the short term trend has weakened considerably. While it is not necessary that this short term weakness will lead to a change in the longer term trend of the market, remember that the short term moving averages, by definition, will always signal a change in trend before the longer term averages. (The 30 day average changes faster because it measures the last 30 days of trading while the 30 week moving average spans 150 days.)
In my previous post, I showed you a "Naked Chart" of GOOG displaying the 10 and 30 day averages without the prices. It was clear that the up trend in a stock (GOOG as an example) was clearly shown by the 10 day average’s being consistently above the 30 day average. Well, over the past 2 weeks many of the leading stocks, including GOOG, have shown a negative cross-over with the 10 day average now being below the 30 day average. 
Other stocks showing such bearish cross-overs include: CME, SHLD, HD, GM, DSL, GDW, FRE, MW, SMTS, CKCM, LDG, HANS, XMSR, NKE. These are just stocks that I have been watching or trading–there are many more. When leaders of the market like GOOG, CME, SHLD and HANS all appear to be weakening, it is an omen for the general market worthy of our attention. I have therefore been cutting back on my longs and am buying puts on some of the stocks listed above. Time will tell if this is a temporary hiatus in the bull market, or a case of the bear waking from a completed hibernation. Be careful out there.
It’s nice to be back. Please send me your feedback at: ewish@comcast.net.
Going on vacation; GMI: +6; Concerns–froth and interest rates; short FRE; Cramer’s mutt–NLY
I started this blog in April and have been posting every market day. The blog helps me to organize my thoughts and trading, and your many comments empower me. I am taking a vacation for the next week and a half. I will post again between August 12-14. I wish all of you well during this period and hope you will join me when I return. I will be monitoring my email while I am gone. So feel free to send me your thoughts and questions. I will not have my complete charting program with me, however. By the way, anyone who does not want to purchase TC2005 yet can plot the moving averages I have been discussing by going to the free interactive charts at www.bigcharts.com and choosing the 2 moving average chart option.
The GMI remains strong, but I sense some cracks in individual stocks. 
Yes, there were 452 new highs today, but only 74 successful 10 day new highs–60% of the 123 new highs 10 days ago closed higher today than 10 days ago. This is the lowest number of successful 10 day highs since the QQQQ rally began 16 days ago. Only 20%-25% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 advanced today. The QQQQ rally is in day 16 (U-16).
Remember that the GMI will not catch the top. It tells us when we can be fairly certain that the trend of the general market has already turned. So the GMI can be +6 and the market could still be forming a top. So what bothers me? First, stocks are jumping up too quickly. Look at WFMI, ISRG, NDAQ, NTRI. Good news comes out and stocks immediately gap higher. After a significant decline, people are cautious and take profits quickly. Thus few stocks have sustained or large rises. After a period of recovery when the prior decline becomes a distant memory, people take bigger chances. It looks to me like we are in a period when people will make sudden impulsive wagers in order to catch rising stocks. When stocks start to rise that way I become more cautious. (Watch for a close of the QQQQ below its 10 day average, currently around 39.40.)
The other thing that bothers me is the rising interest rates and oil prices. We often have a rally during earnings season in an economic recovery as people try to anticipate good reports or buy after good news. Earnings release time is now almost over and we move into the post-earnings lull when the media and traders will focus on the Fed and the business news. What particularly concerns me is the rise in longer term rates. I have been showing you how the short term interest rate indicator has been hitting new highs almost daily. But now the longer term bonds are beginning to crack. 
Look at the Naked Chart (see yesterday’s post for an explanation of this type of chart) of TLT, that tracks the 20+ year treasury bonds. The rise in the bonds appears to be over as the dotted line (10 day average) crosses below the red line (30 day average). A falling index means higher interest rates are in store.
Remember I told you a few days ago that I thought FNM and FRE looked sick. Their charts are mirror images of each other. Look at FRE, which I own puts on. 
The stock is declining and the 10 day average (dotted line) has now crossed below the 30 day average (red line). By the way, check out Jim Cramer’s "Best of Breed" in this sector, NLY. Sure hope you did not follow his recommendation on this mutt!
Now, what are these mortgage investment stocks telling us about interest rates and the housing market? I suggest to you that it is not good news…………..
So, while I still am mainly long stocks, I have taken short positions in some stocks (FRE, NKE, PNRA) that look particularly weak to me. While I am away, I will move my sell stops on my longs up just in case we do go into a post earnings release decline. I hope you all prosper during the coming days in our summer of ’05 as we approach that fabulous month for bears–October………………………………
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Another strong day; GMI: +6 and its track record; Benefits of naked charts; Some Darvas type stocks
Another strong day. There were 522 new highs and only 15 new lows. 61% of the Nasdaq 100 stocks, 76% of the S&P 500 and 83% of the Dow 30 stocks advanced today. Yes, even the Dow stocks are finally moving up. The GMI remains at +6 and has been so since this uptrend began on July 8. 
The chart (click on it to enlarge) shows the changes that have occurred in the GMI since I began posting it in April. Note that the GMI registered a maximum +6 on July 8 when the QQQQ closed at 37.77. In this rise as in the prior May rally the QQQQ consistently closed above its rising 10 day moving average (the dotted line). Since July 8 the QQQQ has closed above its 10 day every day. Hint: When is the market weakening? Wait for a close below the dotted line. To make $$$ in this rise one merely could have bought the QQQQ on July 8 or 9 and held on. Aggressive traders could have bought call options on the QQQQ and made a killing. Why mess around with individual stocks when one can merely trade this index? Until the 10 day average tops out, I see no reason not to be long Nasdaq 100 type stocks. As I said weeks ago, if the train is moving in the direction I want to go, I don’t argue with it–hop on. I can always jump off when it changes direction. I ignore the economy and the machinations of the pundits and economists—I just follow the dotted line……………………..
Speaking of dotted lines. I am now going to show you a most unorthodox "Naked Chart.
" This
chart contains 2 moving averages without the daily prices. The dotted line is the 10 day average and the red line is the 30 day average. Now it does not take a rocket scientist to see that one could have made a handsome profit by buying when the dotted blue line crossed above the red line. One might even say that the prices obscure the trend. The trend is sure apparent here, isn’t it? Fortunately, TC2005 allows me to make any indicator invisible while letting the data be used in the chart. Do you think you might have been able to hang on to this stock and not be shaken out? Can you guess what stock this is? Take a look below. It’s our friend, GOOG! Note how the chart with the prices visible actually obscures the pattern of the moving averages. 
Maybe we could all trade more calmly if we just focused on the two moving averages in Naked Charts. Even if we can’t avoid looking at the prices, one rule that could be taken from this exercise is to only go long stocks when their 10 day average is above their rising 30 day average. In case you think this technique only works well for GOOG, take a look at this past winner. TASR topped out in early 2005 around 33 after doubling in about 4 months. Here is what the daily 2 average Naked Chart looks like. 
Can you see the sell signal at the top?…………………………..
I told you before that the great Nicolas Darvas (see his books listed at right) looked for stocks hitting new highs that have doubled in the past year. Here is a list of stocks that hit new highs today, doubled in the past year and had triple digit increases in earnings in the most recent quarter listed by TC2005: NPSN,ATPG,CNXS,ISRG,TZIX,PLCC,TS,NTRI,HP,SWB,FORD,ATRO,USAK,LAN,
POT,JLG,LIFC,HOLX,BTJ,BTU. This would be an excellent watchlist to research to find the next big market winner–as long as the GMI holds up.
I introduced some new ideas tonight. I would greatly appreciate your comments. Please send me your feedback at: ewish@comcast.net.
IBD Meetup Group Night; GMI: +6; QQQQ rally leaders; FNM and FRE look sick
Tonight was IBD Meetup night. A large group of 14 persons came, indicating that interest in the market has returned. The group could be characterized as being cautious about the market. It seemed that people were making some money, but were still licking their wounds and their accounts were mainly down for the year. One of the persons most skilled in IBD techniques was skeptical about the current rally because of its mediocre volume. Maybe this bull has further to go………………………..
The GMI is still at +6. The indexes were a little stronger today
with 251 new highs among the 4,000 stocks in my universe. There were 146 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher today than 10 days ago. 72% of the Nasdaq 100 stocks closed above their 30 day averages. However, the percentage of stocks in a short term uptrend fell to 51%, suggesting that fewer stocks are following the leaders. Still, between 59% and 63% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose today. We are in the 14th day of the QQQQ uptrend (U-14)………………..
Since the beginning of this uptrend on July 8, the QQQQ has risen +5.16%. During that time 70% of the Nasdaq 100 stocks rose–anywhere from 4% to 32%. The median increase among the advancing stocks was +6%. However, the top 10 performers rose from 14-32%. The largest gainers were (percents are rounded): SNDK (+32%), AMZN (+26%), SSCC (+22%), EBAY (+22%), APCC (+18%) and AMGN (+18%). The largest decliners were: DISH (-5%), PETM (-5%), JNPR (-5%), VRSN (-13%) and SANM (-15%). The 70% of stocks gaining in this period demonstrates the wisdom of Livermore and O’Neil’s rule to always trade with the general market trend. Why fight the trend– and the odds…………………………………..
A number of stocks I have been trading showed strength today–HANS, BBY, IVGN, KOMG, SHLD. And a lot of other growth stocks bounced off of their moving averages. However, two stocks that look particularly sick are FRE and FNM (I own puts on FRE). My interest rate indicators continue to climb. Maybe the higher rates are going to finally kill the mortgage market……………………………….
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Market rebounds; Cramer and NKE and puts; GMI: +6
The market was strong today with many growth stocks finding support at their moving averages. 
GMI is firmly at +6 and there were 224 new highs in my universe of 4,000 stocks. 65% of the Nasdaq 100 stocks advanced, 59% of the S&P 500 and 47% of the Dow 30. We are in day 13 (U-13) of the up-trend. However, the percentage of stocks in a short term up-trend declined to 53%, the lowest reading in a long time……………………….
Tonight Cramer panned Nike. He said that NKE would likely be hurt by the upward revaluation of the Chinese currency. I did not have to wait for Cramer for a reason to sell NKE. NKE had been weakening for several weeks. 
Note on June 27, NKE had a huge decline to its 30 day average (red line) on its largest volume in months. During the following 3 weeks it tried to recover and failed. When it closed below its 30 day average again for 2 days on increased volume I suspected the stock was sick and started investigating shorting it by buying puts in my IRA. I bought an August 90 put for 4.80 (actually $480 for 100 shares) on 7/25. Each put gave me the right to sell 100 shares of NKE at $90/share through August 19. If the stock fell to $80 I could buy the stock and execute the option to sell it at 90, thus making a profit of $520 per put (1000-480), excluding commissions. For every dollar that NKE falls, each put increases in value $100. One does not have to buy the stock, the put will rise in value and can just be sold at the higher price. These puts closed at $5.80 today as NKE declined. ………………………..
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Disappointing day for the bulls; GMI: +6 amid signs of weakness; Buy puts?
Today was a disappointing day for the bulls. GOOG, CME, ORCT and HANS continued to weaken. The short term interest rate indicator went to a new high today and bond indicators declined, portending higher long term interest rates. 
While the GMI remains at +6, there are some signs of weakness. Only 57% of the 4000 stocks I track are in a short term up-trend, the lowest percentage since July 8 when this QQQQ rally began. We are now in the 12th day (U-12) of the rally. Only 30% of the stocks in the Nasdaq 100 and S&P 500 indexes rose today, and only 17% of the Dow 30 stocks. I am slowly getting stopped out of my holdings. Once earnings season is over there may be nothing to support stocks. Time to consider buying puts……………………………….
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Bear trap; GMI: +6; WPM–DIA and QQQQ weaker; Scan for bouncers; ABLE or NOT-ABLE?
Well, I fell into a bear trap last week. I started to talk about shorting when the GMI was still at +6. How many times have I noted that one must go with the market trend–not try to anticipate it. I was so disappointed with the way HANS and GOOG acted last week that I became prematurely bearish. That is not to say that the market could not begin a decline this week. The point is to act AFTER the decline has begun. Right now, the odds still favor those who are long stocks…………………………
As the table shows, the GMI is at +6 and there were 290 successful 10 day new highs. Thus, buying new highs 10 days ago was largely profitable. 
There were also 257 yearly highs on Friday. 81% of the 4000 stocks in my universe closed above their 10 week averages and 64% are in a short term uptrend. We are in the eleventh day (U-11) of the QQQQ rally. Still, it is troubling to me that many of the leaders are having sudden sharp declines (GOOG, HANS, SPTN, FTO NDAQ, ORCT, KOMG, LSCP). If the leaders weaken, the rest of the market tends to follow……………………
The WishingWealth Pulse of the Market (WPM) shows some differences in the performance of the indexes. 
All indexes are above their short term and longer term moving averages. However, the SPY, MDY and IJR indexes are outperforming the QQQQ and the DIA. In fact, less than one half of the Dow 30 stocks are above their 30 week averages, demonstrating considerable variation within this index. Stocks in the Dow that are considerably below their 30 week averages include: MMM, DD, C, JNJ, DIS, VZ. GE is also below and seems to be weakening. I NEVER buy/hold a stock that is trading below its 30 week average. I thank Stan Weinstein for his invaluable insights about the 30 week moving average (see his book, listed to the right). That simple rule alone has saved me $$$$ over the years…………………………….
I ran a scan for stocks that have been strong and seem to be bouncing off of their moving average. I could not ignore the fact that the scan yielded a preponderance of oil related stocks– MSSN,PLLL,ECA,APA, PBR, RIG, PKD,PDC,SU. Interestingly, ABLE also came up. 
You may remember that ABLE tripled in about 10 days last May/June. It then went into a consolidation for 6 weeks and showed some strength on Friday. Note the volume spike to its 50 day average (horizontal blue line in volume section) on Friday. This is the type of stock that might erupt again, if there is a follow through tomorrow. A close below Friday’s low of 16.42 would be where I would place my sell stop if I were to buy it on a move above 18.55 tomorrow. I am not going to buy ABLE tomorrow, however. I am focusing instead on one of the oil related stocks I listed above……………………
If the market and the GMI do begin to weaken this week, I will begin to focus on buying puts on one of the index ETFs (DIA, SPY, QQQQ). It is often easier for me to ride the downward trend of the market than that of an individual stock…………………..
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Slammed leaders and rising rates increase market risk; GMI: +6; shorts as a hedge
To my visitors: I am only one trader, not a guru, and not a financial advisor. I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them. Please refer to the additional comments, highlighted in red, at the end of this post.
Well, now I am a little concerned. When stocks like GOOG and MSFT get slammed after reporting earnings, it may be time to take some money off of the table. Yes, I know the GMI is still at +6, but if I wait for it to give a definite sell I will lose most of my profits. If good earnings cannot support GOOG, then what type of news is left to support it? Too many of the leaders are finding themselves in multiple point declines. When the leaders get into trouble, the rest of the market is not far behind. 
In addition, my short term interest rate indicator has gapped up and keeps hitting new highs. Look at this ugly monthly chart of the indicator. Note it took much less of an increase in rates from 1998-2000 to burst the market bubble. Bonds also seem to be weakening. Perhaps we are seeing the end of Alan’s conundrum. I know I am not supposed to predict the market, but I have the feeling we are in for a rough period……………………….
The GMI remains at +6, but the 10 day new high index was weak today. 
Only 92 of the 174 stocks (53%) that hit a 52 week high 10 days ago closed higher today than 10 days ago. Only 17% of the Nasdaq 100 stocks and 16% of the S&P 500 stocks advanced today. 20% of the Dow 30 stocks advanced. These are some of the weakest readings I have seen during an up trend–this was day 10 (U-10) of the QQQQ rally. There were 267 new highs in my universe of 4,000 stocks………………………………….
Maybe it is time to start looking for stocks to short, at least as a hedge. I will run some scans soon.
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Please remember that the stock market is a risky place, especially now. I am not providing recommendations for you to follow. My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs. While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog. Please consult with your financial adviser and a mental health practitioner before you enter the stock market, and please do not take unaffordable risks in the current market environment. See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.
