2nd day of $QQQ short term down-trend

GMI

1/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

24%

With the GMI registering less than 3 for two days, it flashed a Sell signal Monday night.  Some Sell signals have been fake outs before.  I am waiting to see if this new QQQ short term down-trend can last for 5 days before I go short the market in a big way.

GMI Successful 10 Day New High Indicator Predicted Current Decline; $T2108 indicator, $AAPL

GMI

1/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

21%

As you know, I like to focus on stocks breaking to new 52 week highs.  Strength usually begets strength. One of the things that my stock gurus (Livermore, Darvas, O’Neil) have noticed  is that when a lot of the the types of stocks they traded broke out and did not continue higher it  often provided advance warning of  the weakening of a market up-trend.  Failed break-outs in strong stocks are ominous. This idea was behind my creation of the GMI Successful 1o Day New High Indicator years ago  as one of the 6 GMI components that I track daily.  The GMI Successful 10 Day New High Indicator measures the percentage of stocks that hit a  52 week high 10 days ago that closed  higher today than they closed 10 days ago.  It is very conservative because all it asks is for a stock to  be up at all over its price 10 days ago when it hit a new high. If at least 50% of all of the stocks that had hit a new high 10 days ago pass this criterion, then the indicator is positive and adds a point to the GMI. I post this indicator weekly in my GMI table, see below.

Over the past few weeks the GMI was at 5 (of 6) a lot of the days, mainly because the Successful 10 Day New High Indicator was negative.  I decided to look more closely at how this indicator behaved recently.   From May 22nd until July 3rd, the GMI Successful 10 Day New High Indicator was positive (at least 50% of stocks passed) for all but one of these 29 trading days, or 97% of the days.  The one day that the indicator was negative was because only 47% of stocks had passed. On July 7 and 8 the indicator was negative for 2 days in a row (44% and 42% passed). From July 7 until August 1, this indicator has been negative for 17  of the 19  trading days, or 89% of the days.  The last day this indicator had a positive reading was July 24 (56% of stocks passed). This indicator has been negative for the last 6 days.

Maybe my stock gurus were onto something!   However, keep in mind that it is folly to place one’s bets based on just how one indicator has performed, but the performance of this indicator is one of the reasons I was in cash or short last week and made money in my trading accounts. Another  warning sign was described in my post last Monday…….

So what is the Worden T2108 indicator showing?  This indicator measures the percentage of all NYSE stocks that have closed above their simple moving average of closes the past 40 days. I post its value every day on this blog and you can also get it through the TC2000 program or at their free website freestockcharts.com, by entering the symbol T2108.  To me, T2108 represents a pendulum of the market.  Markets tend to be extended up when the T2108 is above 80%. When it is below 10%, the market is usually close to the bottom of a steep decline.  This weekly chart of the T2108 has a red and green line marking these extremes. The market can reverse at any level, but I do know that if the T2108 should again decline to single digits it is time for me to grit my teeth while the market gossip is terrible and buy a market index ETF. (The market, but not  all individual stocks, has always recovered.) As this weekly chart  shows, the T2108 does not stay  below 10% for long. I drew a blue line at the  low of the T2108 last week. You can see that during the strong market advance since 2010, the T2108 has traded this low at least once each year.  So the current weakness does not necessarily signify the end of the  longer term up-trend….

T2108wkly08012014

IBD still sees the market  “up-trend under pressure.”  They have not considered the market to be in a correction.  In Monday’s edition, they note the fact that with the put/call ratio at 1.9 on Friday, it is at an extreme level where at least a bounce is likely. The GMI is still on its Buy signal from April 22nd.  The GMI measures a mix of short and longer term indicators of the market’s strength.  My QQQ short term trend count  has now changed to down, after 56 days of a QQQ short term up-trend. Note, however, that QQQ short term down-trends since 2006 have often been very short.  Since 2006, about one quarter of new short term down-tends have lasted less than 6 days. When a new short term down-trend begins, I often buy a little of the 3X bearish QQQ index ETF (SQQQ) and add to my position only if the down-trend lasts 5 or 6 days.

After 15  weeks above, the SPY has now closed below its critical 10 week average.  The QQQ remains above its 10 week average, reflecting greater relative strength in tech stocks. The GMI is now at 1 (of 6) and if it registers below 3 on Monday, it will flash a Sell signal. The large cap stocks, including banks look very weak and remind me of 2007. I remain largely in cash and a little short in my trading accounts.  My university pension is still 100% invested in mutual funds, for now.

GMI08012014On more thing.  Everyone asks about AAPL and many consider it the “safe” stock to own. But as one of my gurus says, “all stocks are bad unless they are going up.” Over the years, I have found AAPL fine to own as long as it remained above its rising 10 week average.  Its 10 week average is now 93.44.  A weekly close below that level would concern me.  Check out this weekly chart of AAPL, adjusted for its recent split.  The 10 week average is the blue dotted line. Click on chart to enlarge.

AAPLwkly08012014

 

56th day of $QQQ short term up-trend, but likely to end on Friday; trading 3X bearish index ETF’s

GMI

3/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

24%

I have been writing for some time that short term up-trends rarely last as long as the current one has.  The media pundits are blaming Thursday’s decline on some weak earnings reports.  That is garbage! Did you ever notice that they have all the answers after the market has moved! This decline was baked into the market over a week ago.  Go back and read my posts about the weakening DOW stocks and the tiring up-trend.  On Wednesday I went mainly to cash and a little short the major indexes (SDOW, SQQQ) with two triple leveraged bearish index ETF’s. For example, on Thursday, as the DOW 30  index declined -1.9%, the SDOW rose +5.6% . Check out this daily chart of SDOW:

SDOWdaily07312014

One has to be very careful with the 3X index ETF’s because they go up and down three times as much as the underlying index. For now, I will hold my positions and average up if the market continues to weaken. The GMI could flash a Sell signal with another weak day on Friday.  With most earnings out, we go into the summer lull, culminating in the weak month of September. The longer term trend of the market remains up, however, and I remain fully invested in mutual funds in my university pension—for now.

 

55th day of $QQQ short term up-trend

GMI

5/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

40%

I remain largely in cash in my trading accounts.

54th day of $QQQ short term up-trend

GMI

5/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

44%

This short term up-trend is getting tired!

53rd day of $QQQ short term up-trend; $AAPL near all-time high

GMI

5/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

47%

AAPL approaching all-time high—green line break-out! Check out this weekly chart.

AAPLwkly07282014

 

$QQQ short term up-trend reaches 52nd day; 30% of $DOW 30 stocks weak; $GLD bottom?

GMI

5/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

48%

The short term up-trend in the QQQ that, according to my definition (proprietary, so don’t ask for it),  began on May 13 has now extended to 52 trading days. While two of the up-trends since 2006  have lasted  80 and 88 days, of the 11 up-trends that lasted  50 to 88 days, 45% ended by day 54. So we are in nosebleed territory at day 52.  On the other hand, I am talking only about short term QQQ up-trends.  A short term up-trend could end, pause and then begin anew.  The prior short term down-trend lasted just just 4 days. Remember also that the GMI, my longer term trend indicator, has remained on a Buy signal since April 22. So I remain very cautious, having taken profits on most of my positions in my trading accounts.  My conservative university pension remains fully invested in mutual funds….

What makes me very concerned about this market is the large number of DOW 30 stocks, 9 0r 30%, that have now closed below their critical 30 week moving averages.  According to Weinstein Stage Analysis, one should be invested in stocks when they are in Stage II, above a rising 30 week moving average.  I never hold a stock that closes below its 30 week average. The following DOW stocks have now closed below their 30 week averages, after having been in Stage II advances for many months: BA,UTX,WMT,DD,PFE,GE,V,PG,MCD. These weekly charts show how weak BA, UTX and DD have become. The solid red line is the 30 week average. Click on charts to enlarge.

BAweekly07272014UTXweekly07272014DDweekly07272014Even GE seems to be faltering, with the 2014 advance stopping short of its 3013 peak.

WeeklyGE07272014

When major industrial stocks like these appear to be weakening, can the rest of the market be far behind?

And gold may be in the final stages of a bottom, Stage I, as this weekly chart of GLD shows.

WeeklyGLD07272014

Meanwhile, the GMI remains at 5 (of 6).  It is noteworthy, that its one negative component, is the one that measures whether stocks that hit a new 52 week high 10 days ago have continued to trade higher.  It is ominous when stocks hitting new highs cannot continue to climb. If this market starts to crack, it should show up in my GMI-2 first, which contains a few very short term indicators.

GMI07252014

 

 

51st day of $QQQ short term up-trend

GMI

6/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

53%

GMI back to 6, but I remain cautious.

50th day of $QQQ short term up-trend

GMI

5/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

55%

Long term trend of QQQ remains up in a Stage 2 advance.  Short term up-trend is getting tired. Since 2006, only 9 of the 54 short-term up-trends of the QQQ have lasted longer than 50 days. After earnings season we will enter the dreaded September/October period.

49th day of $QQQ short term up-trend

GMI

5/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

53%

With AAPL down in the after-market after posting solid earnings, this short term up-trend may be becoming a little old.  This is not the time for me to add new positions in my trading accounts.



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