QQQQ down-trend continues; Amazon kindles an impressive gain

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There were 3 new highs and 106 new lows in my universe of 4,000 stocks on Wednesday.   The QQQQ completed the 17th day of its short term down-trend.   It would have to rise a lot more to begin a new up-trend.   Still, I cannot resist buying an occasional strong stock during a counter trend rally. One stock I own a little of is AMZN, a stock championed by Judy.

AMZN had a huge gap up on January 30th when it beat earnings estimates, then consolidated for several weeks.   (Looks like a head and shoulders bottom?) Today, AMZN appears to have broken out again.   AMZN has a great new product in the Kindle 2 digital reader.

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GMI and GMI-R are back to zero, QQQQ in new down-trend; TSYS and GLD; short or in cash

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The GMI and GMI-R have been zero since Tuesday’s close.   There were 3 new highs and 424 new lows in my universe of 4,000 stocks on Wednesday. The Worden T2108 Indicator is now 21% and heading down from the reading of 89% on January 6.   In the November swoon, this indicator bottomed at 1.2%.   So we have a long ways to go to hit the same depths present at the November bottom.   The QQQQ is now in the 2nd day of a new short term down-trend.

If you go back a few posts you will see that I wrote that TSYS looked like a break-out from a cup-with-handle formation.   Well, that stock continues to surge higher and hit a nine year high ($9.93) on Wednesday.   William O’Neil has said not to buy break-outs in a bear market, but this may be the one needle in a haystack that will work out.   I continue to hold a few shares of TSYS…..

I am also holding puts on some stocks in my IRA.   One cannot use margin in an IRA so I cannot short stocks there.   But I can buy put options or inverse ETF’s.   I don’t know if it is too late to short weak stocks, but I know that buying stocks that are in down-trends has not worked for me.   Then again, my friend Judy does so well buying stocks that bounce off of their lows.   In fact, she recently bought GLD in the 70’s and still holds some.   Gold and silver (SLV) have been steadily advancing.   I remain mainly in cash.

The new 3x ETF’s–triple your pleasure — or pain

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As you know, when I try to trade the trend of the QQQQ, I buy QLD (ultra long) or QID (ultra short) ETF’s.   These ultra   ETF’s are designed to move twice as much as the underlying index they track.   Well, less well known is that there now exist 3x ETF’s, designed to move three times as much as the underlying index. I knew about the recent emergence of these Direxion ETF’s, but was surprised to see how quickly they have caught on.   I have now located 16 of them, and 8 of them traded more than one million   shares each on the NYSE on Friday.   Here are the ones I have found.   Bull ETF’s: FAS, BGU, TNA, ERX, EDC, MWJ, TYH, and DZK.   Bear ETF’s: FAZ, BGZ, TZA, ERY, EDZ, MWN, TYP, DPK .   One can even trade options on most of these!   Remember, the leverage works both ways, they aim to go up or down at 3x the speed of the relevant index.   Still, if I have a good idea of the trend, these ETF’s may prove better than going to the casino and putting everything on black or red………..

Meanwhile, the GMI

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GMI: 4; GMI-R: 7; New QQQQ up-trend; ALTI, JNJ

For the first time since June 17, the GMI is 4 (of 6); the GMI-R is 7 (of 10).  In addition, the QQQQ completed day one of a new short term up-trend, U-1.  My longer term indicator for QQQQ remains in a down-trend.  So, this may be a tradeable bounce. There is no way to determine how long it will last.  It just means to me that I can tiptoe into this market on the long side and play the up-trend until it ends.  I am buying some QLD and taking on some small positions in other strong stocks (RIMM, AFAM, BABY, BAX)….

A few weeks ago, my smart stock picking, bottom fishing friend, Judy, called and said I should buy ALTI.  ALTI makes special batteries and she liked the concept.  She got in around $1.80.  I told her I was unwilling to buy anything during the down-trend, and  that I do not typically buy cheap stocks.  (I made an exception with her prior pick, CPST, that went from $1 to $4 and topped out.)  Well, ALTI closed at $2.72 on Wednesday, and in the after hours I bought some.  I ignore Judy's calls at my peril.  Of course, there is no guarantee that ALTI will continue rising, but they did announce a new defense department contract yesterday……

I have learned from past bear markets that when they end, people are most confident about buying defensive, tried and true businesses.  After the new bull market is evident to everyone and people have some profits under their belts, they buy the more speculative stocks.  So, given the apparent new up-trend, what stock is more safe to buy than JNJ? Jnj

As this monthly chart shows, JNJ has just broken out of a 3 year consolidation to a new all-time high.  I bought some.  But, the most interesting thing was that because of the  stock's low volatility, I could buy a long term January, 2009 deep in-the-money LEAP call option for just a few cents of time premium.  So, instead of putting down about $7,100 to buy 100 shares, I purchased the right (not the obligation) to buy 100 shares of JNJ at $55.00 per share for about $1,620.  Thus, until January 16, I control about $7,000 worth of stock for only about 23% of the cost.  Where else can you buy a stock with the equivalent of 23% down without taking on a margin loan and paying interest!  (I even do this in my IRA!) Even better, in the highly unlikely event that JNJ is selling at $0.00 at option expiration in January, the most I can lose is the cost of the option, about $1,620.  If you don't understand what I have written, it may be worth your while to read up on buying in-the-money call options to buy stock at a discount.  Lee Lowell's  Get Rich with Options, has a great chapter on this technique.

GMI: 0; GMI-R: 0; 14th day of QQQQ down-trend; QID up 13%; CPST

The GMI and GMI-R remain at zero each.  There were 75 new highs and 526 new lows in my universe of 4,000 stocks on Monday.  Monday was the 14th day of the current QQQQ down-trend.  During that time the QQQQ has declined 6.9% and the QID has advanced by 13.4%.  The QID is a wonderful way for me to make money as the Nasdaq 100 index declines.  One can even buy call options on QID or write covered calls on it. In the midst of this decline it is amazing how well Judy’s pick, CPST, has held up.  CPST is up 21% during this 14 day QQQQ decline.

GMI: 4; GMI-R: 5; CPST breaks out again

The GMI rose to 4 and the GMI-R fell to 5.  There were 114 new highs and 123 new lows in my universe of 4,000 stocks on Tuesday.  The QQQQ failed to break through its 30 day average.  So the QQQQ is still providing few clues as to its probable direction.  Tuesday was the 5th day of the current QQQQ down-trend.  Meanwhile, CPST, a Judy's pick at $1,  broke out again.