Dr. Wish

GMI: +5; For whom the bell TOLs–my August post on housing; The rally continues

@ 12:01 am

                                                  MY POST ON AUGUST 26

"I can’t count the number of times I have bought puts on the housing stocks only to find them turn up again. Res But I think they may really be topping out now.  Look at this chart of the residential construction sector.  Note that the index is now below the 10 day, 30 day and 50 day averages.  The 10 day (dotted line) is now consistently below the 30 (red) and 50 (green).  This chart pattern is similar to a host of housing stocks such as:  BZH, PHM, LEN, RYL, KBH, MDC, DHI, TOL, CTX, MPH, HOV, to name only a few.  All of them have shown volume spikes recently on down days.  Even TOL, a Cramer favorite, could not retain its gain on good news and reversed to close down near its daily low on Thursday on unusually large volume.  This may only be a correction in housing, but it is consistent weakness among all of the leaders.  Is the roof finally about to cave in?"

In this field of market analysis one must take credit for those few times one gets it right. Last August, it became clear to me that the housing stocks were all acting badly.  And on Tuesday, the roof finally caved in with TOL’s almost 14% decline  when it announced a slowdown in business.  The beauty of technical analysis, and the weakness of relying on public business information, is that the chart shows the selling behavior of those in the know long before the bad news comes out.  Shame on anyone who was holding TOL since August.  Remember I showed you "naked charts," where the price is invisible, so the 10 and 30 day moving averages can be clearly seen?  Look at this chart of TOL. Tol1108 Last August the 10 day average (dotted line) declined below the 30 day average (red line) and a few days later the 30 day average curved down.  Look how easy it was to see the change in trend.  No one should have been caught in Tuesday’s huge decline.  Perhaps we should have a rule only to buy/hold stocks when the 1o day average is above the 30 day average and both averages are rising……………………….

The GMI declined 1, to +5.  This decline occurred because there were only 93 new highs on Tuesday.  Gmi1108 All other indicators remained stable.    Only 41% of the Nasdaq 100 stocks rose, 41% of the S&P 500 stocks, and 37% of the Dow 30 stocks.  Tuesday was the sixth day in the QQQQ up-trend.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +6: Rally continues amid strong Dow stocks; Some promising new highs

@ 12:01 am

It is truly amazing to see how the Dow stocks are recovering.  Dow stocks showing signs of strength include:  DD, AIG, WMT, JPM, MMM, HD, AA, MRK, IBM, MSFT, DIS, C, MCD, INTC, HPQ, MO, UTX, AXP.  Yes, even MSFT and INTC are now above their 30 day averages!  55% of the Nasdaq 100 stocks, 60% of the S&P 500 stocks and 77% of the Dow 30 stocks advanced on Monday.  Gmi1107 There were 78 successful 10 day new highs, stocks that hit a new high 10 days ago and closed higher Monday than 10 days earlier.  There were only 13 successful 10 day new lows.  There were 165 new highs and only 49 new lows in my universe of 4,000 stocks.  20% of stocks are now within 5% of hitting a new high.  Monday was the fifth day of the current QQQQ up-trend (U-5). 

Among stocks hitting new highs Monday that have good recent quarterly earnings (+50% or more) and have advanced 60% or more over the past year are:  IRIS, CPSI, HITK, HSVLY, CUTR, LII, DBRN, GHL, CX, GOOG, CPL, RHAT, ESRX, VTAL.  Check them out.   

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +6; Some promsiing stocks

@ 8:30 am

The GMI is solidly at the maximum reading of +6.  I am surprised that I listened to a local weekly radio commentator (Yudee Chang) Saturday morning (AM 570) who said we were in a "secular bear market." One of my fellow IBD meet-up participants also wrote that he was resisting this rally.  Well, I fly on instruments. And the instruments tell me this market is in a confirmed up-trend, maybe the best this year.  Three quarters of the 60 stocks that hit a new high 10 days ago closed higher on Friday than they closed 10 days earlier. Gmi1104 There were 114 new highs on Friday among the 4,000 stocks in my universe of stocks. Almost one half (46%) of the stocks closed above their 10 week averages, and 40% are in an up-trend, the highest since September 20, and up from 8% in mid-October.  Three quarters (77%) of the stocks that have doubled in the past year are now above their 30 day averages, and twice as many stocks (18% vs. 9%) are within 5% of a new high as to a new low.  This is the time for buying proven growth stocks at new highs.

The WPM paints a similar bullish scenario.  Wpm1104 All five market indicators are now above their 30 day and 30 week averages.  Two thirds or more of their component stocks closed above their 30 day averages and one half or more are above their 30 week averages.  The Nasdaq 100, as measured by the QQQQ, is the strongest index.  The time for  tech stocks is here.

Over my 40+ years of trading, I have noticed that during the times when I have become so frustrated with the market that I have totally gone to cash, the market bottoms.  The past 10 days I was in such a state of mind and therefore took the opportunity to transfer my account to a new broker.  So, of course, the market bottomed while I had no access to my funds.

Now that I am ready to jump back into the market, I used TC2005 to scan the market for all stocks that hit a new high on Friday.  In a new up-trend, the stocks that break first to new highs often become the leaders of the new cycle.  I then refined the list of stocks to contain only those with high recent earnings or revenue increases, that have doubled in the past year, and that are near all-time highs.  These are the stocks I will watch for further signs of strength, ranked by last quarter’s earnings increase:

  KUB,BABY,GOOG,VTAL,NWRE,CUTR,RL,CPL,IX,TRAD,WVVI,

OCAS,DBRN,MKTAY,TMI,IRM,PETS,GS,ITG,GES,AOB,MRGE,

AQNT,KSU,ESLR,GROW, MGI.

All of thee stocks will not perform well.  The key is to research them, pick a few, make pilot buys and then to slowly concentrate money in the few that prove themselves, always maintaining a stop-loss order as insurance against big losses.

Please send me your feedback at: silentknight@wishingwealthblog.com.