Dr. Wish

GMI: 3; GMI-R:7; New QQQQ up-trend; QLD and covered calls

@ 12:01 am

The GMI is now at 3 and the GMI-R is at 7.  February 27 was the last time the GMI was as high as 3.  More important, Tuesday was the first day of a new short term up-trend in the QQQQ.  The down-trend that just ended lasted 55 days.  No one can accurately predict how long this new up-trend will last, but I have to trade with the trend.  If this up-trend  ends abruptly, I will just go back to cash.  I trade in my IRA where there are no tax consequences from getting in and out of a position.  And by using a deep discount broker, commissions are not a factor.  I have therefore been buying the QLD, an ultra ETF that aims to move up (or fall) twice as much as the underlying QQQQ ETF (Nasdaq 100 index) moves.  I have also started to buy some strong growth stocks and to write April calls on them.  I am very happy to sell calls for a 3-6% premium for a one month period.  Yes, I give up any  appreciation in the stock above the strike price.  But I will be very happy to make 3-5% each month on my portfolio. When one sells covered calls to speculators, one profits similar to the way that casinos do.  I am taking money from  persons who are gambling on a rise in the options I sell them.  I use technical analysis and an option scanning service to identify stocks on which to write call options. I also only write calls that will expire within one month and take limited positions in any one stock.  As always, however, the key to success is to trade consistent with the general market’s trend.  I only write calls during a market up-trend. In future posts I will provide examples of some of these trades.

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GMI: 0; GMI-R: 4; More new highs than lows; IBD100 new highs

@ 12:01 am

The GMI (General Market Index) remains at zero (out of 6) but the GMI-R rose to 4 (of 10).  All of the four very sensitive short term indicators I added to form the revised GMI are now positive.  Another up day will begin to raise the original GMI.  For the first time since February 27, there were more new highs than lows (55 vs. 35) in my universe of 4,000 stocks.  50% of the Nasdaq 100 stocks are now above their 30 day averages.  The Worden T2108 indicator is now at 46%, well out of bottoming territory.  Market tops usually occur when this indicator is around 80%.  Monday was the 55th day of the current QQQQ down-trend, which may be about to end. There were 10 stocks on the IBD100 lists I have monitored the past year that hit a new high on Monday:  LKQX, MA, PTNR, KEX, GEF, PCLN, GILD, AXYS, URBN, ISYS.  This list may contain one or more of the new market leaders should this rally last.

GMI: O: GMI-R: 1; Window dressing rally?

@ 12:01 am

The GMI remains at zero (of 6) and the GMI-R is one (of 10). Gmi0320
There were 24 new highs and 174 new lows on Thursday in my universe of 4,000 stocks.  In spite of the fact that Thursday was the 54th day of the current QQQQ short term down-trend (D-54), there are some signs that the market may be strengthening.  First, keep in mind that we are near the end of the first quarter when mutual funds are believed to buy strong stocks to appear in their portfolios when their end of quarter reports are released.  Since these reports do not show the date of purchase, the  fund managers can look especially smart, even though they may have held these winners only for a few days.  Second,  I remember how bear markets have ended over the past 40 years and that the first stocks that people feel more comfortable buying are the big name large cap stocks.  Only after a new bull market is under way and people have some profits, do they feel confident  to buy the more speculative stocks.   The strength I am finding in the Dow 30 stocks may be reflecting such a bias.  The Dow index closed above its 30 and 50 day averages on Thursday on the largest daily volume since its bounce off of the bottom on January 23rd, and a majority of the Dow’s components are now above their 30 day averages.   In addition, the QQQQ is only .13 below its 30 day average, which it has closed  below all 2008, since January 2nd.  Two closes above that level will signal to me a likely change in trend in the Nasdaq 100 index and tech stocks in general. And pessimism is rampant, with the Investor’s Intelligence poll now showing more newsletters  bearish than bullish (45% vs. 31%, rounded–source IBD) a very rare occurrence. And the Worden T2108 indicator has rebounded to 32%, up from 19% on March 10.  Finally, 56% of the Nasdaq 100 and the S&P 500 stocks have a MACD (12/30/9)  that has closed above its signal line, up from below 20% on March 10.

All of these indicators suggest to me that this is not the time for me to take on new short positions.  If I were short, I would place close buy stops on my positions to limit losses.  Rather, I am prepared to slowly accumulate the ultra long ETF’s on the Dow (DDM), S&P 500 (SSO) or the NASDAQ 100 (QLD) indexes if their key moving averages are broached this week. Nevertheless, I have learned  from trading all of these years that it does not pay to try to anticipate changes in trend.  It is much  safer and more profitable to wait for a confirmation that the up-trend has begun.  A GMI  reading above 3 would encourage me to go long.  A failure to penetrate and hold the key levels I have noted would be a sign for me to move into the comparable ultra short  ETFs (DXD, SDS and QID).

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