GMI: 6; short rates indicator plunges

The GMI remains at 6 and the QQQQ is in its 52nd day of its up-trend.  Furthermore, the short term interest rate indicator I have been writing about plunged on Friday. Irxx0615  The sustained down trend in this indicator suggests to me that the next move by the Fed will be to lower rates.

See my disclaimers at the bottom of my prior post.

GMI: 6; GMI-S: 75; Short rates continue to fall; FTO rises

The GMI is back to 6, after rising to 5 on Wednesday.  Gmi0614 In addition, the short term interest rate indicator I have been writing about fell yet again on Thursday and is approaching its weekly low.  This indicator continues to suggest that the Fed is letting short rates fall.  Anyway, why do they need to raise short rates when the bond market has already driven long rates up? Rising mortgage rates will do a lot to cool off this economy and the Fed will probably have to come to its rescue soon.

In the meantime, I eagerly await option expiration on Friday so that I can collect my 3%+ monthly premiums from selling calls. Also, note that FTO, which I wrote about at 40.26 on 5/31 (I own it) is now at 42.91 and appears to be gaining strength….

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GMI: 3?; GMI-S: 25; GMI-L; 88; Turning ugly–sell in May?

On Tuesday, only 23% of the Nasdaq 100 stocks rose, along with just 9% of the S&P 500 stocks and 10% of the Dow 30 stocks.  Gmi0612 There were only 52 new 52 week highs in my universe of 4,000 stocks and few successful new highs from 10 days ago.  The Daily SPY Index is negative and the Daily QQQQ Index will turn so after one more day below its important 30 day moving average. The SPY is now below its 10 week average after staying above it for 10 weeks.  The Worden T2108 Indicator fell to 36%, still far above the 20% + level to which market declines have often fallen to. In spite of all the talk about rising inerest rates, the short term interest rate index remains in a down-trend!

I have only 3 more days before option expiration when many of my stocks will be called away.  Still, much of this month’s gains have disappeared with this decline.  And the GMI-S index of short term indicators has fallen to 25.  If the QQQQ Index goes negative, I will start buying the Ultra Short ETF for the QQQQ, QID.  In that way I can make money as the market falls.  It may still prove right to "sell in May"………. 

See my disclaimer at the bottom of my prior post.

GMI: 5; GMI-S: 44; GMI-L: 100; More new lows than highs

The GMI closed at 5 on Friday, up from one day at +4 on Thursday.  For the first time since last March we have had two days with more new lows than highs in my universe of 4,000 stocks.  There were only 40 new highs Friday, and 50 new lows.  Interestingly, the Worden T2108 indicator of stocks above their 40 day moving average Gmi0608 fell to 46% after a mid-week low of just under 39%.  This indicator is down from 80% in April and tells me that the market pendulum is smack in the middle between the extremes where tops and bottoms occur.  Some market lows have occurred around the 30% level, but the large declines have typically occurred below 25%.  The GMI-L indicator remains at 100% and suggests to me that as yet there is no longer term down-trend in sight.   But the GMI-S is at 44% reflecting the short term weakness. Still, the QQQQ up-trend remains intact and is in its 47th day….

This week is a critical juncture for the market.  A large decline will tip the GMI below 4 and I will get very defensive.  I am trying to hold on to my covered writes until my call options expire on Friday.  So far, my positions have held up well during this decline…..

All of this talk about rising long term interest rates is ignoring the continuing down-trend in the short term interest rate indicator. Interestrates0608  First of all, this decline means that the inversion in the  yield curve is disappearing.  But with the short rates turning down, is the Fed really intending to raise rates? Could it be that everyone is missing something here?  In the past, a sustained rise in this indicator  has telegraphed the Fed’s intentions to raise rates…….

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GMI: 6; Why this market is rising….

The GMI remains at the maximum level of 6.  Gmi0601 There were 488 new 52 week highs in my universe of 4,000 stocks on Friday, the most since December 5.  This is a very strong up-trend with many stocks moving up.  Friday was the 42nd day in the current QQQQ up-trend.  Why is the market so strong?  I searched for any technical indicator that might provide a clue to the rise.  And then I found it in an indicator I haven’t looked at for quite a while.

Take a look at this chart of the short term interest rate indicator.  Note that the 10 week moving average (dotted blue line) has curved down and is now below the 30 week average (solid red line), which appears to have peaked.  Shortratespeaked_2The last time that the 10 week was below the 30 week was in March, 2004, before the Fed started to raise rates.  It now looks like the next move by the Fed will be to lower rates.  It may already have begun.  Could that be why this market is rising?

See my caveats at the bottom of my prior post.

GMI: 6; Leaders strong; FTO

The QQQQ is in the 41st day of its up-trend and the leaders are strong.  There were 455 new 52 week highs in my universe of 4,000 stocks.  Gmi0531 The QQQQ and SPY have closed above their 10 week averages for ten straight weeks.  Many  stocks are strong and have broken out.  Still, gloom and skepticism are abundant and many pundits do not embrace the current up-trend.  This market is climbing the proverbial "wall of worry."  Leaders like RIMM, AAPL and GOOG are rising.  Many stocks are breaking out, especially energy stocks.  One stock I noticed the other day is FTO, which rose ten fold between 2004-2006 and then consolidated for 10 months. FTO recently broke out to an all-time new high. Fto  (See monthly chart below.) I bought the stock and have written covered calls on it which are due a week from Friday.  I am currently 100% long on stocks in my IRA.  I have learned yet again the value of flying on instrument and not by my emotions.  Each time the market appeared to be weakening, it has held the support levels I monitor.

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Oops, should have posted yesterday that GMI is back to 6.

The QQQQ successfully tested short term support and the GMI returned to 5 on Tuesday and to 6 by the close on Wednesday.  Too many leaders moving higher: RIMM, GOOG and AAPL.  Will post tonight.

GMI: 4; GMI-S: 63; Critical juncture

The GMI has fallen to 4 for the first time since March 20.  If the QQQQ fails to hold 46, the GMI will likely slip below 4, the point at which I begin to get defensive.  There were only 77 new 52 week highs in my universe of 4,000 stocks on Friday.  The Worden Indicator T2108 (% of stocks above their 40 day averages) is now at 56%, down from a high of 80% in April.  The pendulum is thus swinging down, and whether it reverses before it reaches a market low below 25% is anyone’s guess.  My similar indicator which tracks the percentage of Nasdaq 100 stocks closing above their 30 day aGmi0525_2verages, is now at 49%, down from above 80% in late April, the lowest it has been since last March when the percentage was rebounding from a low of 11% in early March before the current rally began.  So, we have some signs that this market is weakening.  In addition, the MACD for the daily QQQQ is declining below its signal line and the MACD for the weekly QQQQ has failed to confirm the latest peak in that index.  All of these indicators make me nervous about this market and I will watch it closely for signs of a crack.  The key is to not jump the gun, but to wait for the market to change direction.  For now, the trend is still up.

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GMI: 6; No longer post daily-but when GMI changes; the ideal boomer strategy–writing covered calls?

I have found that posting daily takes too much time and is not really necessarily.  I have a full-time job and have developed a trading strategy that aims for gains over weeks, not days.  It is not necessary and is, perhaps, detrimental to take the pulse of the market too often.  I have therefore decided to post less often and to post at a minimum whenever the GMI changes.  A doctor can gain an idea of my health by checking my blood pressure or lipids, etc. on an infrequent basis.  Imagine how many wrong decisions would be made if these measurements were taken minute by minute of even daily.  For me, the larger trend of the market is what I need to know to trade successfully.

For example, the GMI has been 6 since April 3.  During that period the Nasdaq 100 stock index has risen 6.5% and 69%  of its component stocks have advanced; 45% are up 5% or more. By focusing on the GMI, I could have had a 69% chance of picking a winning stock–that is the odds I get from trading individual stocks when following the longer market trend.  Roughly 70-80% of stocks follow the relevant market averages.  The QLD,  the Proshares Ultra QQQQ ETF that attempts to double the performance of the QQQQ, advanced 12.3% in this same period. By trading the QLD, I do not have to hope that I have picked a winning individual stock–during this period the QLD outperformed 76% of the Nasdaq 100 stocks.  Thus, only 24 of the Nasdaq 100 stocks did better.  I like the odds of trading the QLD, rather than individual stocks, in an up-trending market, as indicated by the GMI….

Because I am a boomer and have acquired a sizable trading capital in my IRA, I have become more conservative lately in trading growth stocks.  I am now reluctant to pile into a break out stock and assume the risk of a sudden down-turn.  I have therefore been training myself in the relatively conservative strategy of selling one month covered calls on stocks I own that are in an up-trend.  Using this method I write a few calls in many different up-trending stocks so that I limit my risk. Applying this method in  a rising market, I have been able to achieve returns of 2-4% each month–five to ten times the .4% monthly returns I get by leaving my money in a money market fund.  On option expiration day most of my stocks are called away and I get to reassess the market trend and select individual stocks for new writes.  If it is true that 70-90% of all options expire worthless each month, why not behave like the casino and take in the option buyers (bettors) money into our IRA’s?   Like any trading strategy, this not the Holy Grail, and requires study and on the job training. Leave a comment if you want me to post more about this best kept secret.

See my prior post for my important disclaimers. 

GMI: 5; GMI-S: 69; Worden Indicator T2108: 60%; Sell in May?

The GMI fell to 5, as only 47% of the stocks that hit a new high 10 days ago closed higher today than they did ten days ago.  Gmi0515 The GMI-S also fell to 69, with weakness in short term indicators for all but the DIA.  In addition, the Worden Indicator of the percentage of stocks above their 40 day averages has now declined t0 60% after hitting a toppy 80.62% in mid-April.  It is not too late for the "sell in May" crowd to be right.  A top in May is still possible…….

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