The GMI turned Red at the close on October 12. Since then the QQQ has declined -2.87% along with 64% of the NASDAQ 100 stocks and 67% of the S&P500 stocks. Meanwhile the SQQQ has increased +8.8%. I rest my case.
But beware–the put/call ratio=1.18.
The leaders are breaking down. The DIA and SPY have now closed below their 30 week averages. Only 30 stocks hit a new high while 201 hit new 52 week lows on Wednesday. This is not a market to go long growth stocks near new highs. Time for me to be in cash or short in SQQQ.
However, SQ was one exception to the carnage. It released some good fundamentals and is worthy of monitoring. Note the large black up volume spikes on this daily chart.
I updated my analysis from 2013 of how long QQQ short term trends last. The findings are remarkably similar: (To see the results from 2013 click here.)
It is clear that short term up-trends last longer than down-trends. In fact, 41% of down-trends ended within 5 days, compared to 21% of up-trends. But 63% of up-trends and 56% of down-trends lasted from 6-47 days. Up-trends were 5x more likely than down-trends (16% vs. 3%) to reach 50+ days. Thus, while Friday was the first day of a new short term QQQ down-trend, I will not wager much on it (by buying SQQQ) until it reaches beyond 5 days. Keep in mind that any move might last longer than those in the table if they have a few brief trend changes in the middle. For example, 25 days up, 3 days down and another 20 days up. In the past, I have found success buying TQQQ when the short term trend turns up. I often follow this strategy using the GMI signals, which are different from the short term trend signals. I have shown that that strategy outperformed about 95% of individual stocks. (It is hardest psychologically to buy when the trend or GMI first changes to up because one is often licking his wounds and gun shy from the prior down-trend.)
Meanwhile, the major indexes are looking weak. The SPY has closed below its critical 10 week average for 8 straight weeks and the QQQ has now closed below its 10 week average. I found in the past that I was unlikely to make money going long growth stocks when the QQQ was below its 10 week average. And the GMI is 1 and RED, with only the Weekly QQQ component positive. This component means the QQQ remains in a Stage 2 up-trend. But the remaining critical indicators in the GMI are all negative. The IBD Mutual Fund Index is below its 50 day average, indicating that the pros cannot trade growth stocks profitably. No wonder it has been difficult for me to successfully trade growth stocks recently. As William O’Neil and Nicolas Darvas urged, it s much safer to trade consistent with the trend of the major market averages. I do not fight the general market’s trend.
While the GMI rose to 4, the QQQ may enter a short term down-trend on Friday. Many of the recent leaders have cracked: FB, NVDA, WB. I am preparing to wade into SQQQ if the QQQ is weak on Friday. Interest rates are spiking, as shown by the gap down in the 20+ year treasury bond ETF, TLT, on Thursday.
IRBT had a green line break-out (GLB) Wednesday to a new all-time high on extremely high volume, after releasing increased earnings.
IRBT also has a rocket stock RWB pattern. (All shorter averages (red) are rising above all longer averages (blue) with a white band between them.