The QQQQ short term up-trend reached its 50th day on Wednesday. The prior up-trend lasted 51 days. Some short term up-trends in the past 5 years have gone on as long as 80 days, but 50 is quite old for a short term up-trend. I am much more comfortable buying stocks when most people are bearish and there are few daily new highs and many new lows. On Wednesday there were 427 new 52 week highs and 18 new lows in my universe of 4,000 stocks. With the municipal bond crisis and the associated state and local budget problems in the background, I remain with one foot out the door of this market. These problems could take center stage once the euphoria surrounding earnings releases is over. Plus we are not far from the, “sell in May and go away” period.
Read my response to the terrific comment I received at the bottom of Wednesday’s post. It is true that with the municipal bond crisis as a context, I sold out my positions along with the market’s weakness last week (before Friday’s drop). I have had a great period since September, with my margin account rising over 100% since September. To be successful in the market I have found that when I get whip-sawed by the market I need to reverse quickly and buy back into the market as long as my market indicators remain strong. With the GMI at 6 and so many stocks in an up-trend bouncing from support, it is easy to find things to buy. But I remain very cautious and re-renter with small buys and buy only on the way up.
Therefore, I bought some March 38 (deep in the money) calls on MCP on Wednesday after it found support at its 30 day average. MCP is a prior “Judy’s pick.” Judy liked the fact that MCP owns mines in the U.S. that contain rare earths, at a time when the largest producer of these minerals, China, is reducing exports. Rare earths are required in many of the power components of green technology (like lithium batteries!). Judy failed to buy (she tried) the stock during its recent IPO (initial public offering) at the end of July and instead bought MCP at around $13 in the open market MCP caught on and traded as high as $62.78 in early January. It retraced a little recently and showed renewed strength on Wednesday. If it weakens again I will sell out. You can see from the daily chart below (click on chart to enlarge) that MCP has found support at both its 30 day (red line) and 50 day (green) moving averages. MCP is different from most of the growth stocks I buy because it has yet to develop earnings. But the future of rare earths is clearly motivating buyers. Kudos to Judy yet again for picking a winning well grounded (pun intended) concept stock (she also likes Lynas, another speculative (cheap) rare earth producer, which I own.)