13th day of $QQQ short term down-trend;17 green line break-out stocks

GMI

0/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

17%

The GMI actually registered ‘0’ on Monday, but I missed it.  The QQQ has closed below its 30 week average now for two days. Since 9/26 when the GMI issued a Sell signal, the QQQ has declined -5.9%.  The SPY is down -5.2% and the DIA is down -4.5%.  Meanwhile, SQQQ (the 3X bearish QQQ ETF)  is up +18.5% during the same period. I wish I had the courage to buy SQQQ every time the GMI issues a Sell signal. Did any of you?   I will just have to wait to buy the TQQQ the next time GMI issues a Buy signal…

I love to watch the new high list when the market is declining.  Here can be found the stocks that are so good they are being supported throughout the dcline.  There were 54 new highs on Tuesday. A few of them, 17,  are above their recent green line tops:  FIZZ, SAFT, TRNO, NU, IGU, SGNT, ANCB, NFBK, CASY, BABY, APT, HPY, POR, AKR, MGEE, CCI, XEL. These stocks are near all-time highs and worth researching for possible leaders in the next market rise, which will eventually come.

12th day of $QQQ short term down-trend

GMI

1/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

13%

Sorry I posted late yesterday morning. If you missed that post about how I identify a bottom, please go back to that post.

Put/call ratio=1.41, bounce coming?!

11th day of $QQQ short term down-trend; How long will this market decline last?

GMI

1/6

GMI-2

0/8

What is the GMI?
 

WORDEN T2108

14%

If anyone tells me they know  when a market decline will end, I ignore them and run the other way.  The truth is that no one knows, except by chance, when a market will turn.  The market consists of millions of “voters” all betting on stocks using different strategies and each with their own tolerance for risk. In comparison, predicting political election returns appears easy! Trend followers are always  late. We get out after the market turns down and back in after it starts up. If we can trade consistent with the general market’s trend, we have a small  advantage to enable us to profit from trading.  Technical analysis gives us an edge over the others who are the equivalent of travelers in unfamiliar territory without the aid of a map or a GPS. So we watch for signs that have in the past signaled a change in trend and have worked for us.

So what do I look at for signs of a change in the market’s trend? (I have lived through many market cycles since I started trading around 1964.)

1. Stage analysis a la Stan Weinstein.  Stage analysis has been the major strategy that I used to get me out of the market in 2000 and 2008 and back in after the market turned. We are still in a Stage 2 up-trend in the DIA, SPY and QQQ. However, the SPY and DIA have now closed below their critical 30 week averages for the first time in over a year. The QQQ may follow them below its 30 week average in the coming week.  If they remain below these averages and the averages turn down, the market could be at the beginning of a major Stage 4 decline.  I will look for that and if it occurs, will transfer my pension money out of mutual funds and into money market funds in stages.  My more nimble trading accounts are already in cash.

2. GMI  My GMI flashed a Sell signal in late September and that is when I started to move into cash in my trading accounts. The GMI measures 6 indicators that have helped me to stay on the right side of the market over the years. If the GMI goes to “0” we will be that much closer to a Stage 4 decline. The GMI is typically on a “Buy” signal for so long, that it makes sense to me to be long in the market only during those times. Why fight the market trend?  So I will look to go long individual stocks again when the GMI closes above 3 (of 6) for two consecutive days= Buy signal.

3. The Worden T2108 acts as a pendulum of market extremes.  It measures the percentage of all NYSE stocks that closed above their simple  average price over the past 40 days. When T2108 is above 80% that is usually as good as it gets and I look for a decline or leveling off in the market. When T2108 gets to single digits, a rare event, it reflects a deeply oversold market and I should be looking to get back in only via a general market index ETF, like SPY. The market always comes back, but not all individual stocks do.  So it is a good idea for me to buy a small amount of SPY and to add to it if the bottom holds. The T2108 closed Friday at 14%. In 2013, the lowest it reached was 13%. During a relatively large decline in 2011 it reached 7%. When T2108 gets into single digits the business news is quite bad.  At that time I must fight my emotions and “fly on instruments” and make an initial small investment in the index ETF whiles I grit my teeth and hold my nose.  The key is to start small and add only at higher prices if the bottom holds. Alternatively and much less stressful, I can just wait for the new Stage 2 advance to begin before I wade back in.

4. I watch the daily put/call ratio.  When it gets close to 1.2, the market at least bounces. A ratio of 1.2 means that 120 put options were traded for every 100 call options traded that day. This means that option traders are extremely bearish and the market usually confounds these people by moving up.  Think of it as a “contrary” indicator, like most other investor sentiment measures. On Friday, IBD says the ratio reached 1.16.

5. IBD Market Pulse.  I never made money trading until I started reading IBD in the 1980’s. IBD is the technical analyst’s newspaper. IBD publishes their market pulse in the paper every day.  Their methodology is very good and in contrast to the other major business papers and establishment  media, IBD will actually advise their readers to get out of the market. William O’Neil’s book (How to make money…) is listed to the right of this page and is literally a users manual for his newspaper, IBD. My university class has this book as required reading. IBD has called the market in a correction for almost as long as the GMI has been on its recent Sell signal. (We employ different technical strategies for assessing the market’s trend, yet we frequently agree.)

6. The final point I like to remember is that unless there are significant adverse tax consequences or mutual fund penalties from timing the market, there is no reason that I should not exit the market if I am uncomfortable. The media try to scare us into staying invested, perhaps because the amount of assets they manage for us usually determines the amount of management fees they take. They warn that if one gets out of the market, one will likely miss the bottom.  The way I look at it is if I get out of a fund at price “X” and the value of my fund  declines, as long as I get back in lower then X, I come out ahead. I therefore do not have to get back in at the exact bottom, and I get to sleep more soundly and watch from the sidelines as the decline continues……..

GMI10102014

10th day of $QQQ short term down-trend

GMI

1/6

GMI-2

1/8

What is the GMI?
 

WORDEN T2108

17%

SPY and DIA have both closed below their critical 30 week averages. Is QQQ next to fall?

9th day of $QQQ short term down-trend

GMI

1/6

GMI-2

4/8

What is the GMI?
 

WORDEN T2108

25%

IBD stills sees market in correction and the GMI remains on a Sell signal. I did close out my position in calls on QID on Wednesday.

8th day of $QQQ short term down-trend; riding the inverse QQQ ETF, $QID

GMI

1/6

GMI-2

1/8

What is the GMI?
 

WORDEN T2108

17%

My call options on QID rose on Tuesday, making my entire account rise.  I am mainly in cash in my trading accounts with a few small longs that are hedged by my call options. For those of you new to the inverse ETF’s, QID is designed to rise 2X more than the QQQ declines.  Thus QQQ declined -1.4% and QID rose +2.9%.  My call options on QID give me leverage and reduce my risk because I can only lose the price of my options if I am wrong. This daily chart of QID illustrates how it has been rising lately with large black volume spikes.

QIDdaily10072014The chart of QID is the inverse (opposite) of its underlying index, QQQ.

QQQ10072014

 

7th day of $QQQ short term down-trend; $CMRX–I told you!

GMI

1/6

GMI-2

4/8

What is the GMI?
 

WORDEN T2108

21%

In Sunday night’s post I listed a number of biotech stocks that had had high volume green line break-outs. I said that some of them may be sitting on new cures.  Little did I know that CMRX would have a drug to fight Ebola. Technical analysis works!

Screen shot 2014-10-06 at 8.26.52 PM

6th day of $QQQ short term down-trend; 11 Biotechs with green line break-outs: $ARDX,$VRTX,$AGIO,$UTHR,$RCPT,$ESPR,$OVAS,$PTCT,$CMRX,$BSTC,$TTPH

GMI

1/6

GMI-2

2/8

What is the GMI?
 

WORDEN T2108

21%

The GMI remains on a Sell signal and I remain largely in cash and hedged.  I do hold a few biotech stocks, see discussion below. This market is rebounding from a high volume decline. It remains to be seen whether this rebound will retake prior peaks or falter somewhere before. This week is very critical for determining the significance of this bounce. I would want to see the QQQ close the week above 99.30.  The QQQ is now below its 10 week average and I cannot make money on the long side when this is so.  There were 50 52-week highs and 134 new lows on Friday.  One possible sign of a meaningful bounce was the fact that the Worden T2108 hit an intraday low of 13% on Thursday.  That is a very oversold level. Put/call ratios were also over 1.0, signalling extreme bearishness among option traders. IBD sees the market in a correction. However, it is just impossible to know in advance whether we have a “dead cat bounce” or a meaningful bottom. I will start to buy the TQQQ when and if the QQQ short term trend turns up….

GMI10032014

Meanwhile, my readers know that I have been focusing on the bio-tech area.  There are so many discoveries occurring in  drug research that this is one area that can buck the market trend. I have been scanning bio-techs each day for high volume break-outs.  I then look at monthly charts to see whether each is near a “green line break-out” to an all-time high. When a stock breaks above a high multi-month (at least 3 month) base, it often means something important is occurring within the company. Here are some weekly graphs of biotech stocks that have come to my attention.  Somewhere among these may be a company with the next new cure for a major disease. These companies are worthy of further research ( a review of recent news stories often explains why the stock surged) and monitoring for possible purchase. If any of these decline below their green line, I  become less interested in them. One approach I like is to buy a few shares (up to 25) of each just to keep them on my radar screen.  I  then slowly add more to those that prove themselves and exit those that fail. I am looking for multi-month or year long moves, not for a short bounce. Click on a chart to enlarge.

ARDXwkly VRTXwkly AGIOwkly UTHRwkly RCPTwkly ESPRwkly OVASwkly PTCTwkly CMRXwkly BSTCwkly TTPHwkly

When a stock breaks out of a monthly, green line top to an all-time high it can be the beginning of a huge move.  As an example, look at this monthly chart of AMGN in 2012. Note also what happened after a failed green line break-out in 2006. When a stock comes back below its green line, it is a sign for caution. But a stock can fail, find support at the break-out, and then resume its rise.

AMGNmonthly

 

 

5th day of $QQQ short term down-trend

GMI

1/6

GMI-2

2/8

What is the GMI?
 

WORDEN T2108

17%

I am mainly short and in cash.

4th day of $QQQ short term down-trend; IBD sees market correction

GMI

1/6

GMI-2

2/8

What is the GMI?
 

WORDEN T2108

18%

My trading account increased on Wednesday due to my call options on QID.  QID is designed to rise  2x as much as the QQQ falls and the call options bet that QID will rise and give me leverage, while minimizing risk.  When one buys options, the most that one can lose is the purchase price of the options. QID rose +3.2% on Wednesday as QQQ declined -1.6%.  Based on short term down-trends since 2006, if the current one last 5 days, it has a 78% chance of continuing for 11 or more days and a 41% chance of lasting 20 or more days.  IBD has now called the market in a correction.



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