Dr. Wish

The GMI is back at zero.  All six indicators in the GMI are negative.  In fact, I have found that I cannot profitably trade growth stocks when the IBD Mutual Fund Index is below its 50 day average.  But now the index is below its 200 day average, a clear sign that the best growth mutual fund managers cannot  trade this market profitably.  The QQQQ has closed below its 10 week average for five weeks.  On Friday, only 27-37% of the stocks in the Nasdaq 100, S&P 500 and the Dow 30 indexes advanced.  There were 32 new highs and 38 new lows in my universe of almost 4,000 stocks.  Only 15% of the Nasdaq 100 stocks closed above their 30 day averages, and only 24% of the stocks in my universe closed above their 10 week averages.  Friday was the 21st day in the QQQQ down-trend (D-21).  The GMI-S is zero, and the GMI-L is now at 19.  The low readings in the longer term moving averages tracked by the GMI-L imply significant market weakness that could persist for quite a while.

The IBD 100 stocks continue to weaken and underperform the general market, as measured by my universe of stocks.  Only 32% of the IBD 100 stocks as of 5/15 advanced on Friday, compared with 37% of my universe.  Stocks in my universe were much more likely to have closed above their 10 day (27% vs 5%), 30 day (24% vs. 9%) and 10 week averages (26% vs. 19%).  The IBD 100 stocks were still stronger with regard to the 30 week averages (68% vs. 40%), indicating that the greater short term weakness in the IBD 100 stocks has not yet nullified their superior strength in the longer term trend.  This relationship is clearly shown in the new statistic in the table, Bullish Stage 2 trend (see Weinstein book at right for a discussion of Stage analysis).  68% of the IBD 100 stocks remain in a bullish Stage 2 up-trend, compared with 38% of my universe of stocks.  It remains to be seen whether the IBD 100 long term up-trend will be overcome by their weak short term trends. Only 12% of the IBD 100 stocks posted on the list on 5/15, closed higher on Friday than they closed on 5/15.  Anyone who thought that the IBD 100 stocks were good "buy and hold" candidates have been taught a costly lesson.

I have been 100% cash in my pension for several weeks now.  I have told you before that I am a chicken and that I go to cash at the first sign of market weakness.  In this way, I have avoided all significant market declines since 1995, but have not missed out on the subsequent rises.  In a market like the current one, it makes no sense to be invested on the long side or to try to find the few stocks that might resist the down-trend.  I go to cash and/or try to short some of the many stocks that are declining.  In spite of the myths spread by the market pundits, there is plenty of time to jump back on board once the market has confirmed a new up-trend.

My current scan of my universe of 4,000 stocks using TC2005 yields 185 Submarines and just 8 Rocket stocks.  There are clearly plenty of stocks in a down-trend that offer good odds of being profitable shorts.  Too bad that we have all been brainwashed into thinking that shorting stocks is too risky.  It is much more risky to buy stocks in a market down-trend.

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