GMI rises to +5, The Google Rocket, Lucky Bill Miller

The WW-GMI moved to a +5, indicating that the markets, especially the NASDAQ stocks, are in an uptrend.  The only component not yet positive is the Successful New High Index.  Nevertheless, that Index shows that 65 of the 104 stocks in my universe that hit a new high 10 days ago closed higher on Friday than they did 10 days earlier when they hit their highs.  Thus, a trader buying new highs 1o days ago had about a 65% chance of owning a stock that increased on the subsequent 10 days.  In contrast, only about one third (15/44) of the stocks that hit new lows 10 days ago were trading lower on Friday. (Even the majority of the new lows 10 days ago rose!) The market is telling us that buying new highs has been a better strategy than shorting new lows.

Remember a few days ago I said that my gut was telling me the market should go down but my instruments were telling me to buy.  One must always go with his/her instruments–the market action.  I do not waste a lot of time trying to divine the market’s direction by focusing on economic news or current events. Don’t get attached to a scenario.  Just watch the market and tune out all of the rest.

So, I am content to own stocks now and to stay with this rising trend.  That does not mean that I will plunge into the market.  Instead, I look for the stocks that are moving to new highs on good volume and I take a small initial position.  If I am right and the stock moves up, I make more small purchases, each one higher than the other. I do not want bargains.  The same is true of real estate.  The beach front property that looked too expensive a few years ago today is much more expensive.    Thus, I began buying GOOG at around 221 after it gapped up, and have slowly added more each time it broke to a new high, after it had rested for a few days.  I have kept my sell stops in place and raised them as the stock rises and each time I make a new purchase.

Is GOOG too expensive?  I do not know.  One never knows the answer to such questions until after the fact.  I guess you could say that GOOG was too cheap at 221.  Since GOOG gapped up on 4/22 there have been 20 trading days, 15 up days and 5 down days,  so people are bidding the shares up 3 times more often than down.  So, I just ride the rocket up, knowing that my sell stops will get me out if the stock falters–I have limited my emotion and limited any pontificating about the stock’s likely future.

In a rising market, 70% of the stocks rise, and I am content to hold on with the odds in my favor. How many stocks have come through this year’s sloppy market and are trading at their all time highs? Isn’t that the type of strength we should be seeking in our purchases?  I suspect that many of the rockets to the moon have already been launched………………………………

I had hoped to write about some technical strategy matters this weekend but could not get to it. In the near future I want to cover  moving averages, my tragedy (911) watch list, and  stop orders.  Let me know whether you are interested in any of  these, or other, topics…………………………………….

As you may know, Bill Miller’s Value Trust Fund  receives a lot of accolades for beating the S&P 500 index for 14 consecutive years. I have a somewhat different opinion of the fund’s most recent record than is espoused by the article that I linked to above.  I thought I would share it with you, and welcome your comments.  This fund holds a limited number of stocks (one has to, in order to beat the averages–see my post on the limitations of diversification) and I happened to be examining the fund’s top holdings a few months ago.  What caught my attention was that AMZN, one of the fund’s largest holdings, had an unusual jump in price and volume in the last few days of 2004, and then immediately tanked in 2005. Between 12/23 and 12/31, AMZN rose 13.77%, while the S&P 500 rose just 0.15%.  Another big Value Fund holding, IACI, also had a huge December rise (+11.87%), followed by a New Year’s collapse. What an extraordinary piece of luck for B.M.—and for his record, that the two stocks making up so much of the fund’s portfolio enjoyed such a surge in year end buying. I wonder, would a big mutual fund family concentrate its buying in a few stocks to preserve the reputation of its star performer?

Send me your feedback at silentknight@wishingwealthblog.com

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.