Dr. Wish

Uptrend to continue? Writing cash secured puts on promising IBD100 stocks; GMI: 2; GMI-R: 4

@ 12:01 am

The QQQQ short term up-trend is now in its 4th day.  GMI1212

However, there were only 4 new highs and 100 new lows in my universe of 4,000 stocks on Friday.   Still, 58% of the Nasdaq100 stocks closed above their 30 day averages. The GMI closed at 2 (of 6) and the more sensitive GMI-R is at 4 (of 10).   I tend to look to buy stocks when the GMI rises to at least 3. Friday was the 4th day of the current QQQQ short term up-trend. In a few days I will have a better idea if this up-trend has legs……..

In an up-trending market (as measured by the QQQQ), I like to trade the IBD100 stocks.   The IBD100 lists contain the top 100 growth stocks that meet the stringent IBD technical and fundamental criteria.   A new list is published by IBD each Monday.   From time to time, I create a watchlist in TC2007 containing the current IBD100 list.   I now have a watchlist containing about 660 stocks that have appeared on selected IBD100 lists over the past year.   The IBD100 growth stocks tend to perform quite well when the market is rising.   Tonight, I ran a TC2007 scan I have created, on the stocks in this IBD100 watchlist and found 10 present or former IBD100 stocks that appear to be in strong up-trends: EBS,DLTR,ALGT,THOR,INT,APOL,AVAV,LHCG,SHEN,GTIV. I do own a couple of these. But I also have written cash secured put options on some of these stocks with strike prices below the support level .   I am basically betting that the stock will not break below support by option expiration this Friday.   If this technique works out, I will write more about how I do it in a future post.   Writing cash secured puts is equivalent to writing covered calls on a stock, but I do not have to start out by buying the stock.   The cash backing the puts I sell stays in my account in a money market fund and continues to earn interest.   So, I receive the premium from selling the puts AND the interest from the cash backing them.   Quite a nice (but not risk free) income generating technique in my IRA……

GMI: 0; GMI-R: 2; QQQQ short term up-trend in jeopardy

@ 9:25 pm

The GMI fell to zero, and the GMI-R to 2.  Thursday was the 3rd day of the new QQQQ short term up-trend.  Another down or unchanged day for the QQQQ on Friday would start a new QQQQ short term down-trend.  There were 5 new highs and 61 new lows in my universe of 4,000 stocks on Thursday.  The Worden T2108 indicator fell to 32%.  I need to be very cautious and wait to see if this up-trend continues.

GMI: 2; GMI-R: 4; T2108: 43%; 2nd day of QQQQ short term up-trend; Bill Miller’s fall

@ 12:01 am

The short term uptrend remains intact, with the GMI at 2 (of 6) and the GMI-R at 4 (of 10).   The Worden T2108 indicator is at 43%, the highest since last September and well out of bottom territory.   Tops often occur when the T2108 is at 70% or better.   Another sign of strength is that 68% of the Nasdaq100 stocks closed above their 30 day averages, the most since August 28th.   And the dollar may be breaking its up-trend, causing gold and other commodities to rise…..

If you got a chance to see the Wall Street Journal on Wednesday, you may have read the sad story about Bill Miller’s fall from grace.   This icon of buy and hope and addiction to value has seen his fund and his career get shattered.   It is very depressing that such a good stock picker apparently had no plan to abandon stocks that developed down-trends.   Fundamental analysts kept telling him how undervalued his stocks were, even as many became more and more undervalued, and descended into oblivion. We need to remember that “value” is a myth.   As Nicolas Darvas wrote, the only reason to buy a stock is if it is rising; if it is not rising there is no reason to own it.   I   hope Bill Miller can keep his job and that he learns from his painful experience.