On the verge of a GMI Sell signal but markets becoming very over-sold; $AGIO rocks

GMI

2/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

22%

With the failure of Wednesday’s rebound, the indexes are likely to enter short term down-trends on Thursday.  This is the time to step away and watch from the sidelines. This daily chart of the QQQ shows it broke below support on the highest volume in months.

QQQdaily09252014

The longer term trend of the QQQ remains up, however. I have very small positions in my trading accounts.  My university pension remains invested in mutual funds for now. With the put/call ratio at 1.11 and the T2108 at 22, we could see at least a short term bounce very soon.

One recent green line break-out stock had a great day on Thursday.  Check out this daily chart of AGIO.

AGIOdaily09252014Now that is unusual relative strength!

GMI Buy signal and $QQQ short term up-trend hold–for now; New highs with good earnings: $SWKS, $UTHR

GMI

3/6

GMI-2

6/8

What is the GMI?
 

WORDEN T2108

30%

We went to the brink and turned back, so the up-trend remains intact. It is still a weak rebound, however.  There were only 40 new highs but 237 new lows on Wednesday.  Only 57% of all U.S. stocks rose, but 90% of the Nasdaq 100 stocks rose.  So this is yet again a lop-sided rally, primarily among growth and tech stocks.  This daily chart of the QQQ (Nasdaq 100 stock ETF) shows that it held its lower Bollinger Band and climbed back  above its 30 day average.

QQQdaily09232014

The GMI rose to 3 and therefore did not flash a Sell signal.  We will have to wait to see if this renewed up-trend can sustain itself.  I own a little TQQQ and will add to my position if the QQQ holds. Only two stocks came up in my scan for stocks at new highs with strong recent earnings—SWKS and UTHR. Both are above their green line break-outs. Check out these weekly charts.

SWKSwkly09232014

UTHRwkly09232014

$QQQ short term up-trend likely to end Wednesday; small caps entering Stage 4 decline

GMI

2/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

26%

The SPY weakened on Tuesday as did the QQQ. The GMI could flash a Sell signal with another decline on Wednesday. Small stocks are about to enter a serious Weinstein Stage 4 decline, as shown by this weekly chart of IWM, the Russell 2000 Index ETF. In fact, IWM appears to have put in a double top. Note that the 30 week average (red line) is about to turn down. With the small cap stocks caving in, can the rest of the market be far behind?

IWMwkly09232014

27th day of $QQQ short term up-trend; indexes on support; GMI=3

GMI

3/6

GMI-2

5/8

What is the GMI?
 

WORDEN T2108

32%

Tuesday will largely tell the story whether this 27 day long short term up-trend in the QQQ is likely to end.  QQQ and SPY are sitting right on their 30 day averages and their lower Bollinger Bands. If they close below these key levels I suspect we are likely at the beginning of  a significant decline. The T2108 indicator is now at 32%, lowest since it hit 28% on August 8, just before the latest up-trend began. And the GMI has fallen to 3. This daily chart of QQQ shows that the underlying Nasdaq 100 index is on critical support. Note also the heavy selling volume (red spikes) the past two days. (Click on chart to enlarge.)

DailyQQQ09202014

Note the similar pattern in the SPY:

DailySPY09202014

Tuesday’s action will be very important to determining the near term trend of the market.

Market is weaker than it looks–nifty 50 all over again?

GMI

5/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

40%

There are some very curious statistics tied to the current market. At a time when the SPY, and DIA are near new all-time highs, the measures of the market internals are weak.  For example, why is the T2108 only at 40%?  This means that only 40% of NYSE stocks closed Friday above their 40 day average prices.  In June, T2108 was above 70%! The Wishing Wealth  10 Day Successful New High indicator showed only 25% of the stocks that hit a new 52 week high 10 days ago closed higher on Friday than they closed 10 days  earlier.  In contrast 68% of the stocks that hit a new low 10 days ago closed lower on Friday than 10 days earlier. And there were as many stocks hitting a new high on Friday as hit a new low.  That is very strange. Why should 200 stocks be hitting new lows? And on Friday, only 32% of all U.S. stocks and 24% of the Nasdaq 100 stocks rose! Could it be that the few hugely favored growth stocks are driving the indexes while the rest of the market is weakening. Years ago in the 1960’s and 1970’s such a phenomenon occurred with the “nifty 50″.  All one had to do was to invest in these  high growth “one decision” stocks and one’s investments would be assured. We all know how that investing strategy failed in the bear markets of the 60’s and in 1974. Perhaps AAPL, AMZN, GOOG and TSLA are among this cycle’s one decision stocks.  At some point they may join the majority of  stocks that have been silently weakening…

GMI09192014

 

25th day of $QQQ short term up-trend

GMI

5/6

GMI-2

8/8

What is the GMI?
 

WORDEN T2108

42%

Friday we all get to see how Alibaba (BABA) trades.

24th day of $QQQ short term up-trend; $QQQ holds key technical levels

GMI

5/6

GMI-2

4/8

What is the GMI?
 

WORDEN T2108

39%

QQQ has now bounced above its 30 day average (red line) and its lower Bollinger Band.

QQQdaily09172014

Now on to the Alibaba IPO this Friday.

23rd day of $QQQ short term up-trend

GMI

4/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

39%

Here comes the Fed!

22nd day of $QQQ short term up-trend

GMI

4/6

GMI-2

3/8

What is the GMI?
 

WORDEN T2108

35%

Only 47 new 52 week highs in my universe of 6,000 stocks on Monday.  Time to be very cautious.

Market technicals weakening

The excitement about Apple and Alibaba may be diverting attention from the general market’s weakening.  The Worden T2108 Indicator, the percentage of all NYSE stocks that closed above their simple 40 day average price has peaked again and started down.  Look at this weekly chart of the T2108 (click on to enlarge):

T210809122014T2108 has peaked recently at 65%, indicating the last rise was not even strong enough to get the T2108 to the more typical 70-80% level.

In addition, interest rates on bonds are moving up, as reflected in the decline in IEF, an ETF composed of 7-10 year U.S. treasury bonds.  Falling bond prices  = rising rates.  (Think of it this way.  Current interest rate or yield= Constant pay-out/changing current price.  As the denominator–the current price of a bond falls, the value of this fraction, or the yield, increases.) Note that IEF has closed below its 30 week average and declined 1.09% last week.  The 10 year treasury bond now yields 2.61%. When the Fed meets this week, it could attract attention to rising interest rates.  Rising rates hurt the stock market because people will begin to sell their relatively more risky investments in stocks and invest instead in safer, higher yielding government bonds. If retirees can earn 5% or more by keeping their money in FDIC protected CD’s or governments bonds, why should they gamble in the scary stock market roller-coaster? Most bear markets are precipitated by rising interest rates.

IEFweekly09122014

This daily chart of the SPY (S&P500 ETF) shows some ominous patterns.  Note the high red volume spikes during the market’s decline in August, followed by the relatively low volume rebound to new highs in September.  Now note the large down volume (red) spike on Friday.  A break of Friday’s low of 198.56 would likely result in a larger near term decline. Then what?

SPYdalily09122014

This technical weakness in the general market is also reflected in the GMI-2, now at 3 (of 8). It is noteworthy that the GMI is at 4 (of 6) and still on a Buy signal since August 14.  However, the two components of the GMI that are negative are very telling.  Fewer than 100 stocks reached a 52 week high on Friday and less than 50% (only 28%) of the stocks that hit a new high 10 days earlier closed Friday above their closing price from 10 days earlier.  Failed break-outs in strong stocks can be an early sign of a weakening market. And this is the wonderful, famously weak September/October period.

GMI09122014

So what to do?  I am mainly in cash in my trading accounts.  I remain fully invested in mutual funds in my university 401 (K) accounts, pending further signs of weakness. I remain cautious in the midst of the Apple and Alibaba euphoria.



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