Big concerns–too many indexes in Stage IV declines; GMI near Sell

GMI

2/6

GMI-2

5/8

What is the GMI?
 

WORDEN T2108

28%

Over the past year I have been whip-sawed by stocks, with my trading account value going to all-time highs and then giving back the advance. I recently became so tired of the market roller coaster that I took a vacation from the market and went to the sidelines. So I missed the recent bounce and served as a wonderful contrary indicator. In my defense, I had told you I expected a rally into earnings to be followed by a post-earnings swoon. I have small positions now in SQQQ (3X bearish bet on the QQQ) and I have bought a put option on the China market ETF, GXC.

These actions all occurred  before I spent some time looking over the market indexes this weekend. Now I am very concerned. As most of my long time readers know, I was out of the market and in cash in my trading and conservative pension accounts during the major declines in 2000 and 2008. (I did get back in after the bottoms were in.) The primary indicator that made me flee the market both times is based on Stan Weinstein’s Stage Analysis. When the market indexes enter a Stage IV decline I retreat. A Stage IV decline is defined as when the price of the stock or index is trading below its declining 30 week moving average.   I begin to take special notice when the DIA, SPY or QQQ close below this critical average. The DIA and SPY are now below their 30 week averages and while the QQQ is above its 30 week average, it may have experienced a failed break-out (head fake) last week that will lead to a significant decline below its 30 week average. I begin to exit the market in my most conservative pension accounts when the 30 week average starts to curve down.  It has not done so yet, but it is looking ominous. Here are the weekly charts of the three ETF’s I monitor for the major indexes. The solid red line is the 30 week average.

DIA07252015SPY07252015QQQ07252015

Note that all 3 indexes traded below their 30 week averages recently and then climbed back above it. But both the SPY and DIA have now closed back below it, a critical sign of weakness. I have been writing all week about the fact that the QQQ looked strong because of a few big name stocks, but that most stocks were breaking down. The big transportation stocks and the utilities are already in solid Stage IV declines:

DJ2007252015DJutil0-7252015And then there is the China market ETF, which is not in a Stage IV yet, but is now bouncing from a major decline. This market should at least re-test the recent lows, which may or may not hold. A weakening Chinese economy is being blamed for much of the worldwide declines in commodities, which in itself is disconcerting.

GXC07252015

When I look at these charts of the U.S. market indexes and then at the number of key individual stocks in Stage IV declines, I am reluctant to stay long in this market. By my count, on Friday where were 7x more new yearly lows than new highs! I have to look at how the market is behaving, not at what the market pundits say.

Once earnings season is over there is little to propel this market higher— and then there is the Fed. Over my 50 years studying the market, I have learned that when the Fed wants to raise interest rates the market often falls. And with so many boomers near retirement, many will exit  when stocks fall and they seek out  alternative safer income producing instruments (even savings accounts) that become available as interest rates rise. This time could be different, but I doubt it. Past performance does not necessarily predict future results, but each of us has to find a way to protect our life’s savings……

Meanwhile the GMI is at 2 or 3? (of 6) and could signal a Sell if Monday’s markets are weak. I cannot tell from the chart if the IBD fund index is above its 50 day average (GMI component 6). IBD has now called the market uptrend under pressure, yet again. It is also noteworthy that the two 3x ETFs that climbed the most on Friday were gold miners, JNUG (+17%) and NUGT (+10%). If this market plummets we could see a flight to gold and U. S. treasury bonds.

GMI07242015

 

 

 

 

Indexes standing on quick-sand

GMI

6/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

32%

The rises in the big momentum stocks like NFLX, GOOG and AMZN are moving the QQQ higher but are masking the weakness in the general market. Traders are seeking refuge in a few big names. There were almost 400 new lows on Thursday, more than twice the number of new highs. With a put/call ratio of 1.0 on Thursday, we should get a bounce today.  But when earnings season is over, there is nothing to propel stocks higher, and here comes the Fed. I am mainly in cash in my trading accounts.

$AAPL’s weakness is ominous sign for market

GMI

6/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

38%

AAPL07222015When AAPL fails can the rest of the market be strong?

Very Cautious

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

36%

We may finally be reaching the top I have been talking about. I am mainly in cash in my trading accounts.

More new lows than highs

GMI

6/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

39%

There were almost twice as many new lows than highs on Monday. The troops are not in synch with the indexes. I think we are close to an important top after we get through earnings.

Buying climax in the $QQQ?

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

41%

In reviewing my  market statistics this weekend, I was surprised by what I learned. With the Nasdaq 100 (QQQ) streaming to an all-time high last week I expected to see strength in my measures of how individual stocks had performed. The QQQ closed up 5.5% last week to an all-time high. But the SPY (+2.4%) and DIA (+1.8%) have not followed it to record territory. Then I found that only 34% of the Nasdaq 100 stocks rose on Friday and 39% of the SPY (S&P 500) stocks. While these were strange inconsistencies, the most striking finding was that there were more new yearly lows on Friday than yearly highs in my universe of over 5,000 stocks!  So what is driving the Nasdaq 100 index to record levels?  This index weights stocks by capitalization (total shares outstanding  by price per share). Among the stocks in the index with the highest weighting are GOOG and FB, up 16% and 4.5% on Friday alone. So a few very large cap stocks in the Nasdaq 100 index (NFLX, CELG, AMZN) are responsible for this record run and are distracting from the weakness in the other stocks. It does not bode well for an army when most troops do not follow the generals. I would not be surprised to see this market  top out shortly after the major tech stocks report earnings this week.

Two other indicators I follow signal short term overbought in the QQQ. 56% of the stocks in the QQQ have  overbought statistics and this daily chart of the QQQ shows it is now above its top 15.2 daily BB. Look what happened last April when the QQQ behaved this way.  The 7% rise in the QQQ the past 6 days looks to me like a buying climax. (I hold a small trading position in SQQQ.) If the SPY and DIA reach record levels I will have to revise my outlook.

QQQ07172015The GMI remains at 6 (of 6).

GMI07172015

IBD switches to market in uptrend

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

43%

This market will cool after most  earnings are out and we enter the post-earnings lull period. Towards the end of the year we will also have to cope with the Fed. It is noteworthy that we still had over 100 new yearly lows and only 60% gainers on Thursday. The QQQ futures indicate a likely open today way above its top (daily 15.2) BB.

2nd day of new $QQQ short term up-trend

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

39%

My GMI sign post to the right may be wrong. The GMI went to a Buy at the close of  July 14.  The futures (light blue horizontal arrow on chart) suggest that QQQ will open around the top BB today. About 40% of the Nasdaq 100 stocks now have an over-bought stochastics. This bounce has been very rapid, up 4% in 5 days–unsustainable! Remember, the market always falls faster than it rises. A break to new all-time highs followed by a reversal would be a significant sign of a major top. IBD still sees market uptrend under pressure.

QQQ07152015

 

GMI signals BUY

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

41%

Enjoy the rally while it lasts.

Bounce continues

GMI

4/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

38%

It remains to be seen how far this bounce will carry. IBD still sees uptrend under pressure. Another up day will turn the GMI to a Buy signal.



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