Dr. Wish

I guess some of you probably thought that now that I am 100% in cash, this must be the bottom!  It could be, but my track record in avoiding major declines has been quite good.  I am a chicken and would rather get out and be proven wrong than stay in and suffer a large loss.  The media pundits make us think that we must be invested all of the time so that we will not miss the next rise.  But this is horrible advice.  Any advance worth trading lasts months and one can wait for the train to leave the station and still hop on for a long trip.  The advance that just ended lasted 50 days, the prior advance lasted 80 days, and the one last December lasted 86 days.  So what’s the need to hurry?

Fighting the trend of the major indexes is a loser’s game.  Since the beginning of the current decline (identified by my definition, D-1)  on November 8, the QQQQ has fallen 3.7%.  During that time, 87% of the Nasdaq 100 stocks have declined.  What about the other stocks not measured by the QQQQ?  75% of the stocks in the S&P500 declined (including one that is unchanged) along with 80% of the Dow 30 stocks and 65% of the S&P 600 smallcap stocks.  With odds like these, why would anyone be looking for stocks to buy??!!  At least one could go short and have the trend in his/her favor.  Do you see why I get out of the market or go short when the GMI breaks down?   Only 25% of the 4,000 stocks in my universe rose during this period; only 16% rose 2% or more. 

So I am content to remain in cash until the GMI rises. (Click on table to enlarge.) The only indicator still positive is the Weekly QQQQ Index, which is just sitting on support.  (The analogous indicators for the S&P500 and Dow 30 turned negative 3 weeks ago.)  It is only the lack of financial stocks in the QQQQ that is making this index outperform the others.  Buying stocks at new highs is a loser’s game now.  Only 11 of the 88 (13%) stocks in my universe that hit a new high 10 days ago closed higher on Friday than they did 10 days earlier. Compare this number to the 363/519 (70%) of stocks that hit a new low and have closed lower–far better odds to short new lows than to buy new highs.

I do not know when this decline will end–nor does anyone else.  We could be at the end of a correction or at the beginning of a many month decline.  It does seem odd to me that the QQQQ declined about 11% in four days and still has not mounted much of a bounce back rally.  With conditions like these, I prefer to watch from the sidelines.

This market looks so bad that I am now 100% in cash, both in my IRA and in my university pension.  This is not the time for me to be a hero and there will be plenty of time to enter the market when the current down-trend ends. It amazes me to hear the media pundits looking for stocks to buy.  I guess they don’t make money unless people trade.

The GMI and GMI-R continue at 1/6 and 10%.  There were 577 new lows in my universe of 4,000 stock on Tuesday, more than there were at the bottom last August.  Only 8% of the Nasdaq 100 stocks closed above their 30 day averages, also lower than the number last August.  On Tuesday, 36% of the stocks in the Nasdaq 100 index rose, along with 55% of the S&P500 and 67% of the Dow 30 stocks. The QQQQ is lying on support and we will have to see whether this index holds.  The QQQQ is in its 8th day of a short term decline.  The Nasdaq 100 index contains no financials; all of the other major market indexes that contain financials have broken below their key 30 week averages.  I am still mainly in cash.