GMI: 2; GMI-L: 63; GMI-S: 19; IBD100 stocks underperform; Short or cash

First of all, no one knows how long this decline will continue.  Trend followers only know a turn after it has occurred.  The GMI got me out of the market unscathed.  I am now sitting in cash and have retained my profits from the prior up-trend.  But, what to do now?  Gmi0727_2 The GMI is 2 and could fall to one as early as Monday.  Even my longer term indicators have weakened, with the GMI-L now at 63.  Nevertheless, the longer term up-tend of the QQQQ remains intact.  As long as the QQQQ remains above its rising 30 week average (now at 45.59), it remains in a Weinstein Stage 2 up-trend.  Note, however, that the SPY and IJR have both closed below their 30 week averages.    Hence there is a possibility that the tech stocks, reflected in the QQQQ, will continue to outperform other stocks, or follow the others down.

The Worden T2108 indicator (% of stocks above their 40 day average) is now at 15, definitely in market bottoming territiory.  But this is not the time to be a hero.  Even the IBD 100 stock lists have been slaughtered.  As this table shows, almost none of these momentum growth stocks are within 5% of their 52 week highs and only 2-3% of them hit new highs on Friday.  Ibdperf0727 At least three quarters of the stocks on the IBD 100 lists over the past year are now below their average price for the past 30 days, somewhat worse than the stocks in the Nasdaq 100 index.   Those of us who like to ride growth stocks to new peaks should be completely aware that this is now a low probability strategy.

My goal is not to try to anticipate a market bottom. I buy stocks breaking out to new highs, after they have recovered from a decline.  There will be plenty of time to buy (and write calls on) the new leaders after the market has bottomed. In fact, the easiest time to find the new leaders is to check the daily new high list once the dust has settled.  The few stocks that come through a decline like this and quickly break out to new highs are the ones I want to own. So I plan to sit in cash and nibble at some shorts while I wait for this market to turn.  In spite of what the pundits assert, there is plenty of time to make profits AFTER the market has revealed that it has turned. There is no need to anticipate the reversal; that is usually a futile and costly practice.  I will wait for the GMI to climb back above 3 before I test the waters again.

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GMI: 2; GMI-S: 25; In cash or short

The GMI is now at 2, and there is no reason to fight the down-trend.  I hope you got out when I did when the GMI weakened on Tuesday and Wednesday.  Gmi0726 There were 513 new 52 week lows in my universe of 4,000 stocks on Thursday, the most  since I began posting in May, 2005.  There were only 46 new highs.  This is not a market to be long in.  The Worden T2108 indicator is now at 19.  Extreme readings at bottoms in 2001 and 2002 have been as low as 7.  So we could go lower, but we are in a level where bottoms occurred in 2004-2006.  The thing that bothers me is the brutal selling in financials, homebuilding real estate and retail.  It looks like the market is predicting a major down-turn in consumer spending and a financial meltdown…..

Cramer’s four tech horsemen (AAPL, AMZN, GOOG and RIMM) held up on Thursday.  He thinks one should still buy tech stocks.  However, the bear gets to everyone and it is likely this decline will not end until these stocks cave in too. If I have learned anything the past 40 years, it is that most stocks follow the market averages and it does not pay to be long in anything in a market down-trend.  Keep in mind, however, that according to my indicators, the QQQQ (the Nasdaq 100 tech stocks) is still in an up-trend, even though the Nasdaq composite (that also includes financial stocks) is in a down-trend.  It is time for me to be short or in cash, even though we may get a bounce soon.

See my disclaimers below.

GMI: 3; GMI-S: 38; Waiting for QQQQ to turn

My Daily SPY Index turned negative on Wednesday, bringing the GMI to 3 for the first time since it was below 4 on March 19. (I posted "3?" on one day since then but I subsequently corrected it to 4 because I had jumped the gun on one indicator that required 2 days down before turning).  The short term GMI-S is now 38.  The Worden T2108 indicator is 31, still not in the range of past market bottoms, typically below 25.

I am content to remain in cash for now.  By following my gut I did miss out on further gains in GRMN and AAPL, but I am coming away with almost all of my profits from the past three months.  I am fortunate that many of my holdings were called away on Saturday because this week’s decline has hit these stocks hard.

I always play the odds, and the risk of being long appears to me to be too high for now.  The SPY and IJR  look very weak, but the QQQQ and DIA are behaving relatively stronger for now.  Two daily closes of the QQQQ below 48.50 and the DIA below 136.30 would signal an imminent decline.  Perhaps it would be best to just take August off, as many traders do.  After earnings are out there will be little good news to propel stocks higher.  And that ominous September-October period is just around the corner.

Please see my disclaimers on my prior post.

GMI: 4; in cash + QID

The market has weakened considerably, with the GMI now at 4.  The Worden T2108 indicator is now at a new low with 32% of stocks above their 40 day averages, still above the level at which bottoms occur (below 25%).  There were 342 new 52 week lows in my universe of 4,000 stocks and only 91 new highs.  The brokerage stocks are getting slaughtered, suggesting that the general market and underlying financials are weak.  This is not the time to be brave.  I am in cash with a small position in QID in case this decline continues.  QID goes up twice as much as the QQQQ falls.  Be careful.

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GMI: 6; fly by gut or instrument?

The GMI is still 6, but I am troubled by a few things.  First, there were more new 52 week lows than highs in my universe of 4,000 stocks on Friday, 161 vs. 134.  The number of new lows was the highest since 163 on August 10, 2006, when the summer market decline bottomed out.  The new low list is filled with banks, REITs, builders and financials.  During a bull market, stocks like LEH and MER  and GS and SCHW should be soaring, not in a free-fall. The Worden T2108 indicator is now at 44, down from a rebound to 55 from 34 about three weeks ago.  Finally, weakness in GOOG after its earnings were released on Friday was the first big crack among the market leaders. So, will AAPL when it releases its earnings on Wednesday follow the lead of ISRG and RIMM, or that of GOOG?  A collapse in AAPL would signal to me that the up-trend is almost over.  Jesse Livermore cautioned that when people stop bidding up the leaders, then they soon stop paying up for the other stocks and the market tops…..

Thus, while the market trend remains up, I am content to stay largely in cash this week; most of my shares were called away on Saturday.  There will be plenty of time to take on new covered call positions if stocks hold support this week.  I am too cautious to fly mainly on instruments (my indicators) this week and prefer to listen to my nervous gut.

See my disclaimers on a prior post.

GMI still 6; waiting on options expiration

The GMI is still 6.  However, there were more new lows (159) on Wednesday than I have seen since last March when the Februrary rout ended.  Still, there were also 138 new highs in my universe of 4,000 stocks.  All up-trends I follow are still in place.  The Worden T2108 indicator fell a little, to 49.5; markets get toppy around 80.  The market pendulum is right in the middle between the bull/bear extremes.  On Saturday, most of my stocks will be called away and I will be back in cash and ready to write new August calls.  In addition, I am still long GRMN, FTO and AAPL, and short OMX.  Many oil stocks bounced off of support on Wednesday…

See my disclaimers on my prior post.

GMI: 6; All indicators positive; T2108 only 55; OMX weak

The GMI has been at a maximum 6 since July 3.  (Note :  I mainly post when the GMI changes.)  The GMI has been 4 or above since March 20.   If I had merely bought and held the Ultra QQQQ ETF, QLD, since then, my portfolio would have increased by about 24%.  It’s that easy–just catch the trend and ride it until it ends.   Gmi0713 Of course, I did not do this, but I have done well during this time writing covered calls, and riding AAPL and GRMN and FTO, all of which I wrote about.  In fact, I would say that if one has not made money during this rally, s/he should just stop trading and invest in a mutual fund or the SPY. The market provides brutal feedback, one knows the score by whether s/he makes or loses money.

The T2108 is 55%, so this rally probably is a long way from the toppy 80’s. However, the QQQQ has closed above its 10 week average for 16 weeks. A close of this index below its 10 week average, currently 47.53,  would be a sign of weakness and a signal that the up-trend is weakening.  Meanwhile, I will not fight the tape, although I could not resist buying some puts on OMX, which is in a steady downtrend. Holding a short on one very weak stock will enable me to make money when this strong market starts to correct.

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GMI: 6; Rally has more to go; IBD100 stock performance

The GMI is still at the maximum of 6. The Worden T2108 indicator, the percentage of stocks above their 40 day moving average,  is now back to 56%, up from a bottom reading of  34% at the end of June.  The pendulum is swinging back and typically does not top out until around 80%.  So this rally probably has more to go. So many stocks appear to be strong and the Nasdaq 100 tech stocks are leading the market up.

Speaking of growth stocks, take a look at how the IBD 100 stocks have been doing.  You will recall that IBD’s continual substitution of good performers in the list for poor performers biases the performance of the IBD 100 index over time.  My table below shows how each each original list has performed after it was published in IBD.  Ibdperform0708 Note that only about 50-60% of the stocks in the lists from 2006 closed on Friday above their price when the lists were first published.  I added a new column to the table, the percentage of stocks in each list that closed on Friday within 5% of their 52 week highs.  Note that the majority of the IBD 100 stocks on the lists from only the last two months, May and June, are within 5% of their yearly highs.  62% of the stocks on the IBD 100 list published on May 14 and 71% on the list from June 18, closed within 5% of their 52 week highs.  In contrast, only about one third or less of the stocks on the lists from February 5 and before, are near their yearly highs.  Another noteworthy finding from the table is the number of new highs last week among the IBD 100 stocks.  Approximately one fourth to one third of the stocks on the lists from April, May and June hit new highs last Friday, compared with only 10-14% of the Nasdaq 100 or S&P 500 stocks. These statistics suggest to me that one should not marry the IBD 100 stocks, but stay mainly with those on the more recent lists published by IBD.

I am a little cautious about this market because many traders have told me they are making  money.  It is unfortunate that one only realizes that the market trend has changed, sometime after it has occurred.  Enjoy this uptrend, but we must be prepared to lose some of our profits after it ends….

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GMI is back to +6. GOOG, GRMN, FTO, AAPL strong

The GMI is back to a maximum of 6.  GOOG, AAPL, GRMN and FTO (I own some of these) remain strong. Maybe we will get that earnings release rally this month.

GMI: 5; AAPL to folllow RIMM’s lead?

The GMI is back to 5.  The SPY and DIA are weak.  The Nasdaq 100 stocks are showing the most strength. It will be interesting to see whether AAPL follows RIMM’s lead next week.



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