Dr. Wish

The GMI is still +1 and the market internals deteriorated Thursday.  (I erred yesterday in saying that the QQQQ Weekly Index was negative, so yesterday’s GMI was actually +1.) There were only 22 successful 10 day new highs, the least since I started counting this statistic in May.  There were 107 successful 10 day new lows, the most I ever counted.  Clearly, buying new highs 10 days ago in the hope of making a profit has been unlikely to work out, and was far less successful than shorting new lows.  Only 26% f the 4,000 stocks in my universe are in a short term up-trend, and only 30% are above their 10 week averages.  There were 28 new highs and 152 new lows on Thursday.  Only 23% of the Nasdaq 100 stocks rose, along with 30-31% of the S&P 500 and Dow 30 stocks.  More stocks are now within 5% of hitting a new low (13%) than of hitting a new high (11%).  Thursday was the second day  (D-2) in the QQQQ down-trend……………

I am therefore mainly in cash.  I will use any bounce to unload my few holdings if they start to weaken again.  The trading gurus I admire all said to get out of the market when the trend is down–except to take the short side.  With more daily lows than highs and with more stocks near new lows, taking the long side is clearly going against the trend………..

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

We didn’t have a lot of warning, but I did say yesterday that I should be on the sidelines, after Tuesday’s action.  Wednesday, the GMI went to zero. There were only 54 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher Wednesday than 10 days earlier.  In other words, only 35% of the stocks that hit new highs 10 days ago closed higher Wednesday than the day they hit their new high.  Many of the gurus cited in the books to the right have observed that failed break-outs are a sign of impending market weakness.  In addition, there were more (99) "successful" 10 day new lows, suggesting that shorting stocks at new lows has been profitable.  There were only 41 new yearly highs but 148 new lows.  I mentioned last post that having a lot of new highs AND new lows suggested a troubled market.  Well, I read today that this phenomenon is known as the "Hindenburg Omen."  Only 8% of the Nasdaq 100 stocks and the S&P 500 stocks advanced on Wednesday along with 3% (1) of the Dow 30 stocks.  The last time we saw numbers like this was on August 16, a day when the averages also first closed below their 30 day averages.  Yes, the DIA, SPY and QQQQ are now all below their 30 day averages and the DIA and SPY are below their 30 week averages, suggesting longer term weakness.  Only 36% of the stocks in my universe of 4,000 are above their 10 week average, the lowest number since I began tabulating this statistic on June 17.    Note that there are almost as many stocks within 5% of their yearly lows (12%) as there are close to their yearly highs (14%).  Only 59%  (down 14%) of the strongest stocks that have doubled this year remain above their 30 day averages.  This is day one (D-1) of the new QQQQ down-trend……….

As I said yesterday, this is not the time to be a hero–I am mainly on the sideline.  The crack in the housing stocks is finally upon us and their demise may signal dire consequences for the economy.  If we get a bounce during earnings season the next few days, it might be a good time to unload losers and raise cash.  With the GMI at zero, I remain very cautious. Jim Rogers, a very successful trader with George Soros, opined this week on "Cavuto on Business," that we will be in a recession next year.  In addition, I have written before that the 4 year stock cycle of bear/weak markets 62, 66, 70, 74, 78, 82, 87 (late one year and crashed) 90, 94, 98, 02…..  also suggests that we are due for a bad market in 06.  Is the Fed destined to over-tighten and bring on a recession……..

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

Things turned weak on Tuesday, and the GMI declined one, to +5.  While there were 300 new yearly highs in my universe of 4,000 stocks, only 32% of the Nasdaq 100 stocks, 24% of the S&P 500 stocks and 17% of the Dow 30 stocks advanced. Significantly, the DIA and SPY indexes closed below their 30 day averages.  The QQQQ held.  Even worse, the DIA closed below its 30 week average, a major sign of weakness.  The market is not exhibiting any sustained trend, with the indexes closing above, then below their key moving averages.  Housing stocks remain in a down-trend, with interest rates rising.  With earnings season approaching, selected stocks are rising, hinting at good earnings to come.  Nevertheless, this is probably a good time to be mainly in cash on the sidelines. 

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