The GMI declined to +5 Wednesday–there were only 68 new highs and 121 new lows. Having more new lows than highs is sometimes ominous. But the indexes are so far above their 30 day and 30 week averages that I am not worried. There were 134 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher Wednesday than they did 10 days earlier. Three quarters (77%) of the stocks that have doubled in the past year closed above their 30 day averages. And 50% of the 4,000 stocks in my universe closed above their 10 week averages. However, 48% of stocks are in a short term up-trend, down from 57% on Monday. So there has been some deterioration in the market internals, but not enough to seriously impact the major stock indexes. Wednesday was the twelth day (U-12) of the QQQQ up-trend.
A lot of attention was focused on GM’s decline Wednesday (-5.8%). Could we have foreseen this trouble? The chart tells it all. Look at this weekly chart of GM. The red line is the 30 week moving average that Stan Weinstein (see his book at right) wrote about as being central to defining a stock’s trend. A declining 30 week average is evidence of a stock’s declining trend. Note that since June 2004, with the exception of a few weeks in 2005, GM has traded consistently below its declining 30 week average. No one should have been surprised at GM’s action, after it fell back below its 30 week average at the end of September. I NEVER BUY OR HOLD A STOCK THAT IS TRADING BELOW ITS THIRTY WEEK AVERAGE. This rule alone gets me out of bear markets and declining stocks early in the down-trend. Charts are worth a lot more than a thousand words.
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