GMI: 0; GMI-R: 0; Short or in cash; EDU as a model short

The GMI and GMI-R are each registering zero.  The markets are in solid down-trends, with the SPY and QQQQ closing below their 10 week averages for 17 weeks. Gmi0308 There were only 23 new highs and 504 new lows in my universe of 4,000 stocks on Friday .  The Worden T2108 indicator is now at 24%, still above the extreme level at which the market tends to bottom.  At the the January bottom, it registered 18%.  At the bottom in 1987, it registered an amazing less than 1%.  Most recent bottoms/bounces  occur in the area around 14%.
Only 19% of the Nasdaq 100 stocks closed above their 30 day averages and only 28% had their MACD close above its signal line.  Since the current QQQQ short term down-trend began on January 2nd, that index has declined 16.6%, and 80% of its components stocks have declined–30% have fallen 20% or more.  In the same period, 76% of the the stocks I monitor from the IBD100 lists the past year have also declined.  The lesson to be learned is that one should not hold stocks in a general market down-trend.  Why not be in cash or short in a market decline?

So, since I won’t buy rocket stocks (I found 55)  in a down-trend (stocks just rarely keep hitting new highs), I used TC2007 to look for some submarine stocks and found over 500.  All of these stocks are in confirmed down-trends. Edu
The following stock, EDU, has a real promising chart pattern, and is selling at a price-to-sales ratio of over 13! This  weekly chart (click on to enlarge) shows that EDU  tripled, formed a top and then broke down on huge volume (when the company talked of tougher earnings comparisons in future quarters).  After breaking below its 30 week average (red line), EDU rebounded and failed last week to hold that line.  Furthermore, its 10 week average (blue dotted line) is now below its 30 week average.  This is the type of stock I might short by buying a put  in my IRA.  I would close the trade with a loss if the stock trades again above last week’s high of 67.40.  There are so many submarines with patterns like this. In the current market environment, the odds of success favor going short on a submarine like this rather than betting on the rare rocket on the long side. Alternatively, I could wait safely on the sideline, in cash.

Newdisclaimer

1 thought on “GMI: 0; GMI-R: 0; Short or in cash; EDU as a model short”

  1. Hi, Eric,

    Thanks for providing us such good guidance. I appreciate and learned a lot from you. You have changed my trading style for ever.

    But this time I would say that it is very dangerous to short EDU, because it’s float share is only 3.44 Million.

    By the way, I am from China and I have enrolled this school for some courses in 2001.

    Thanks.

    Allen

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: