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.
GMI: 0; GMI-R: 0; Worden T2108: 19%
The GMI and GMI-R remain at zero. There were 16 new highs and 499 new lows in my universe of 4,000 stocks on Monday. The number of new lows is still below that reached on last Friday (504) and well below that reached on January 22 (1453). On the other hand, the Worden T2108 indicator, at 19%, is getting closer to bottoming territory or to at least a bounce. I am almost totally in cash. It’s nice on the sideline.
GMI: 0; GMI-R: 0; Short or in cash; EDU as a model short
The GMI and GMI-R are each registering zero. The markets are in solid down-trends, with the SPY and QQQQ closing below their 10 week averages for 17 weeks. There were only 23 new highs and 504 new lows in my universe of 4,000 stocks on Friday . The Worden T2108 indicator is now at 24%, still above the extreme level at which the market tends to bottom. At the the January bottom, it registered 18%. At the bottom in 1987, it registered an amazing less than 1%. Most recent bottoms/bounces occur in the area around 14%.
Only 19% of the Nasdaq 100 stocks closed above their 30 day averages and only 28% had their MACD close above its signal line. Since the current QQQQ short term down-trend began on January 2nd, that index has declined 16.6%, and 80% of its components stocks have declined–30% have fallen 20% or more. In the same period, 76% of the the stocks I monitor from the IBD100 lists the past year have also declined. The lesson to be learned is that one should not hold stocks in a general market down-trend. Why not be in cash or short in a market decline?
So, since I won’t buy rocket stocks (I found 55) in a down-trend (stocks just rarely keep hitting new highs), I used TC2007 to look for some submarine stocks and found over 500. All of these stocks are in confirmed down-trends.
The following stock, EDU, has a real promising chart pattern, and is selling at a price-to-sales ratio of over 13! This weekly chart (click on to enlarge) shows that EDU tripled, formed a top and then broke down on huge volume (when the company talked of tougher earnings comparisons in future quarters). After breaking below its 30 week average (red line), EDU rebounded and failed last week to hold that line. Furthermore, its 10 week average (blue dotted line) is now below its 30 week average. This is the type of stock I might short by buying a put in my IRA. I would close the trade with a loss if the stock trades again above last week’s high of 67.40. There are so many submarines with patterns like this. In the current market environment, the odds of success favor going short on a submarine like this rather than betting on the rare rocket on the long side. Alternatively, I could wait safely on the sideline, in cash.
GMI: 1; GMI-R: 1; Still in cash
This is the type of market that one should not fight. I remain in cash. The GMI and GMI-R are each one. There were 37 new highs and 361 new lows in my universe of 4,000 stocks on Thursday. This is not the time to bet on a stock hitting a string of new highs. The exception is commodities.
GMI: 1; GMI-R: 1; 100% cash
The GMI and GMI-R are still each one. Wednesday was the 43rd day of the current QQQQ short term down-trend. The QQQQ has closed below its 10 week average for the past 16 weeks. There were only 48 new highs and 148 new lows in my universe of 4,000 stocks on Wednesday. Only 33% of the Nasdaq 100 stocks closed above their 30 day averages and the Worden T2108 indicator closed at 38%, in the neutral range. I am 100% in cash.
GMI: 1; GMI-R: 1; Back to cash.
The GMI and GMI-R are still each one. The indexes are in confirmed down-trends. I am going to cash again.
GMI 1; GMI-R: 1; Down-trend continues; Ultra short ETF’s
The GMI and GMI-R each fell back to one. There were 26 new highs and 219 new lows in my universe of 4,000 stocks on Friday. The last time there were more than 200 new lows was January 23. The major index ETF’s I follow have now bounced down off of resistance. The market looks very weak. Friday was the 40th day of the QQQQ down-trend. Take a look at major bank stocks–they look a lot like the housing stocks looked during their tremendous declines. Major banks like BAC, WB, C, CS, DB, UBS are in a free-fall. They all have weekly charts like Wachovia’s (click on to enlarge). What does this tell us about the health of the economy? To ensure FDIC protection, no one should have more than $100,000 in a single bank. I am getting out of all unhedged long positions. I am still holding some stocks on which I have written calls, but will get out of these if their important support levels are broken. I am considering buying some of the Ultra Short ETF’s (QID, SDS, DXD, SDD) to hedge my long positions…….
I am taking a few days off on an already scheduled vacation–not because of the market. I will post if I can on Tuesday. Be careful–this is not the time to be a pioneer on the long side.
GMI: 2; GMI-R: 4; QQQQ Up against resistance; IBD100 new highs
The GMI is back to 2 and the GMI-R to 4. The QQQQ bounced down off of resistance Thursday. The next few days should tell us whether the current short term up-trend will continue or whether the down-trend resumes. There were 89 new highs and 93 new lows in my universe of 4,000 stocks. The Worden T2108 fell to 53%. 16 stocks from the IBD 100 stock lists I monitor hit highs on Thursday: NBL,XTO,GG,WFT,NEU,OIL,STLD,CMED,FLS,ABV,NGS,CENX,
MTL,AUY,ATLS,GEF. Some of these stocks may turn out to be the new market leaders…..
It is true that my indicators can only tell me when an up or down-trend has already begun. This is the essence of trend-following. But I have learned that trends can continue for months and there is plenty of time to jump on after the turn. Anticipation of turns is futile and just leads to losses. No one can consistently predict the market.
GMI: 3; GMI-R: 6; 38th day of QQQQ down-trend
The GMI is at 3 (of 6) and the GMI-R is at 6 (of 10). There were 83 new highs and 47 new lows in my universe of 4,000 stocks on Wednesday. Wednesday was the 38th day of the current QQQQ down-trend. It remains to be seen whether the short term strength of the past few days will lead to a longer term change in trend.