GMI: 2; GMI-R: 4; Trend still down

The GMI increased to 2 (out of 6) and the GMI-R to 4 (out of 10).  Gmi1129Thursday was the 14th day in the current QQQQ short term down-trend (D-14).  Both the QQQQ and the SPY remain below their 10 week averages. I have the best chance of making money going long when these indexes are above their 10 week averages.  My short term indicator, GMI-S, is now back to 50% after being zero for ten days, through Monday. Interestingly, the daily MACD’s for the indexes and many leading stocks have had a bullish crossover.  While there has been some improvement in the indexes I follow, it is not yet enough to convince me that the trend has turned. 

GMI: 1; GMI-R: 2; Trend is still down.

The GMI is still one but the GMI-R rose to 3.  The Worden T2108 indicator rose to 26%.  While this rally is impressive, it has to go further to change the trend to positive.  The QQQQ short term down-trend is in its 13th day.  There were 70 new highs and 66 new lows in my universe of 4,000 stocks on Wednesday.  I need to keep an open mind in case the trend turns up.  Never fight the tape–or the Fed.

GMI:1; GMI-R: 1; Worden T2108: 15%, up from Monday’s low of 13%

The GMI and GMI-R are both back to one.  The QQQQ climbed back above its key 30 week average.  However, the DIA, SPY and the COMP remain well below their 30 week averages.  The Worden T2108 indicator is at 15%; at the low last August it was just below 8%.  The one bright spot I see in the Nasdaq stocks is that the leaders– RIMM, AAPL, BIDU, ISRG and GOOG appear to be holding up.  Still, there were only 25 new highs and 359 new lows in my universe of 4,000 stocks on Tuesday.

GMI: 0; GMI-R: 0; Masochists holding stocks

The GMI and GMI-R are back to zero.  Gmiperf1126(Click on the figure to enlarge.)  The QQQQ is in the eleventh day of its short term decline.  Only 3% of the Nasdaq 100 stocks closed Monday above their 30 day averages.  This is the lowest percentage since I began recording these stats two years ago.  The fact that the GMI is now zero and that many of my indicators are hitting new lows suggests to me that the market is entering a longer term decline. Anyone who refuses to go to cash and is holding on to stocks should examine his/her motivation.  It took me almost 40 years to learn to get out of the market when it is in a confirmed down-trend and to avoid giving up my profits from the prior rally.  As the great trader Jesse Livermore used to say, we should fear when a stock falls and hope when it rises.  Most unsuccessful traders, he maintained, do the opposite.  They hope for a profit when they have a loss and fear losing a profit when they have a gain.  Most people holding stocks now are reduced to praying for the market to bail them out.  As Livermore once opined during an imminent decline, such persons are now about to suffer amputation without an anesthetic………….


GMI: 1; GMI-R: 1; Not in stocks

I guess some of you probably thought that now that I am 100% in cash, this must be the bottom!  It could be, but my track record in avoiding major declines has been quite good.  I am a chicken and would rather get out and be proven wrong than stay in and suffer a large loss.  The media pundits make us think that we must be invested all of the time so that we will not miss the next rise.  But this is horrible advice.  Any advance worth trading lasts months and one can wait for the train to leave the station and still hop on for a long trip.  The advance that just ended lasted 50 days, the prior advance lasted 80 days, and the one last December lasted 86 days.  So what’s the need to hurry?

Fighting the trend of the major indexes is a loser’s game.  Since the beginning of the current decline (identified by my definition, D-1)  on November 8, the QQQQ has fallen 3.7%.  During that time, 87% of the Nasdaq 100 stocks have declined.  What about the other stocks not measured by the QQQQ?  75% of the stocks in the S&P500 declined (including one that is unchanged) along with 80% of the Dow 30 stocks and 65% of the S&P 600 smallcap stocks.  With odds like these, why would anyone be looking for stocks to buy??!!  At least one could go short and have the trend in his/her favor.  Do you see why I get out of the market or go short when the GMI breaks down?   Only 25% of the 4,000 stocks in my universe rose during this period; only 16% rose 2% or more. 

So I am content to remain in cash until the GMI rises. Gmi1123 (Click on table to enlarge.) The only indicator still positive is the Weekly QQQQ Index, which is just sitting on support.  (The analogous indicators for the S&P500 and Dow 30 turned negative 3 weeks ago.)  It is only the lack of financial stocks in the QQQQ that is making this index outperform the others.  Buying stocks at new highs is a loser’s game now.  Only 11 of the 88 (13%) stocks in my universe that hit a new high 10 days ago closed higher on Friday than they did 10 days earlier. Compare this number to the 363/519 (70%) of stocks that hit a new low and have closed lower–far better odds to short new lows than to buy new highs.

I do not know when this decline will end–nor does anyone else.  We could be at the end of a correction or at the beginning of a many month decline.  It does seem odd to me that the QQQQ declined about 11% in four days and still has not mounted much of a bounce back rally.  With conditions like these, I prefer to watch from the sidelines.


GMI:1;GMI-R:1; 100% cash

This market looks so bad that I am now 100% in cash, both in my IRA and in my university pension.  This is not the time for me to be a hero and there will be plenty of time to enter the market when the current down-trend ends. It amazes me to hear the media pundits looking for stocks to buy.  I guess they don’t make money unless people trade.

GMI:1; GMI-R:1; 577 new lows

The GMI and GMI-R continue at 1/6 and 10%.  There were 577 new lows in my universe of 4,000 stock on Tuesday, more than there were at the bottom last August.  Only 8% of the Nasdaq 100 stocks closed above their 30 day averages, also lower than the number last August.  On Tuesday, 36% of the stocks in the Nasdaq 100 index rose, along with 55% of the S&P500 and 67% of the Dow 30 stocks. The QQQQ is lying on support and we will have to see whether this index holds.  The QQQQ is in its 8th day of a short term decline.  The Nasdaq 100 index contains no financials; all of the other major market indexes that contain financials have broken below their key 30 week averages.  I am still mainly in cash. 

GMI: 1; GMI-R: 1; Worden T2108: 17%

The GMI and GMI-R remain at 1 and the Worden T2108 indicator is at 17%, in the area where bottoms are likely.  Last August 15,  this indicator fell to near 8% at the bottom of the summer decline. I am still almost entirely in cash.

GMI:1;GMI-R:1; QQQQ bounce off support?; Too many bears?; New leaders?

The GMI and GMI-R remain at 1. There were 268 new lows and 33 new highs in my universe of 4,000 stocks on Friday.  The number of new lows is much less than the number (519) on November 8 and suggests that most of the weakest stocks are not continuing to decline.  The Worden T2108 indicator is now at 22%, up from the low of 19% reached on November 12.  On Friday, 16% of the Nasdaq 100 stocks closed above their 30 day averages, up from 11% on November 12.  Only 12% of my universe of stocks are in an up-trend, near the low point reached on November 14%, but still above the low of 7% reached last August at the bottom of the summer decline.

The Nasdaq 100 declined really rapidly from November 7-12. The index was in a vertical free fall more characteristic of selling climaxes.  We would therefore expect some back and forth movement of this index as traders adjust to this collapse and place their bets on a continuing up or down trend.  The reason that the GMI and GMI-R still register 1 is that the Weekly QQQQ Index remains positive.  This index is my primary indicator of a longer term up or down move. Qqqq30weekaverage This weekly chart of the QQQQ (click on to enlarge)provides me with a clearer view of the market’s longer term trend. It is obvious to me that the major trend of the QQQQ remains up and that the Nasdaq 100 index has just found support at its critical 30 week average (red line).  I put a “?” next to the third test because it remains to be seen whether this support will hold.  It was the reversal of the 30 week average in Oct 2000 that caused me to exit the markets near the top.   Stan Weinstein (see his book to the right) alerted me to the importance of the 30 week average for detecting individual stock and entire market longer term trends. DISCERN THE TREND FROM WHAT THE MARKET IS DOING, NOT FROM WHAT THE PUNDITS ARE SAYING.

So where do I see the  current trend?  First, according to IBD, the put/call ratio was 1.19 on Friday.  Readings above 1.00 indicate that options players are placing more bets on a decline, a major contrary indicator suggestive of at least a short term bounce up.  Second, the media pundits are openly bearish and talk of an economic depression is creeping into their gossip.  Third, the percentage of market bloggers bearish in a sentiment poll I participate in has tripled, to over 60%. And finally, we are entering the strongest (bullish)seasonal period in the markets.  Given all of the above and the weekly chart of the QQQQ above, I remain mainly in cash and short the QQQQ in the QID.  But I am ready to reverse my stance immediately if this market  starts up.  The market will climb a wall of skepticism and it does not pay to marry a particular market scenario….

I love market declines because it is much easier to identify the next leaders.  Stocks that can remain close to their yearly highs or even break into new high territory in the recent market environment may be among the new leaders when the market turns.  So, I used TC2007 to scan the market for new highs on Friday and looked at the fundamental and technical data to select some possible winners for my watchlist.  These stocks hit new highs on Friday and had recent quarterly earnings increases of 100% or more: BITI and ATRO.  These stocks hit new highs and had recent quarterly revenue increases of 25% or more:  CSIQ, FCN, ATRO, EHTH, VMSI and ACO.  If we get a year end rally, these technically strong stocks with strong fundamentals may be where I look to place my bets.  Clearly, others (insiders?) are already accumulating them…..

GMI:1; GMI-R:1; Down-trend continues

Don’t fight the trend.  I am in cash or short the Nasdaq 100 by the QID.

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