Dr. Wish

The GMI has now flashed a Red signal. This is a sign for me to be extra cautious and in cash or short in my trading accounts. The QQQ short term down-trend is now 2 days old. I have a small position in SQQQ, the triple leveraged ETF that is designed to rise three times as much as the QQQ declines. On Wednesday, the QQQ fell -1.3% and SQQQ rose +3.8%. If the short term down-trend persists, I will add to my position in SQQQ. By definition, SQQQ moves quickly up and down.

Contributing to the weakness in QQQ, AAPL is now in a daily BWR down-trend with all of its shorter averages (red lines) below declining longer term averages (blue lines).

The debacle in the ETN, XIV, may be behind some of the selling in stocks by hedge funds to raise cash. Check out its weekly chart and learn why ETNs can be much more risky than ETFs–a 95% weekly decline!

The GMI could turn Red on Wednesday and Tuesday began a new QQQ short term down-trend. Many short term down-trends have ended in less than 5 days. If this one can get to 5, I may accumulate some SQQQ. Furthermore, the market may have to retest Tuesday’s lows. The daily 10.4 stochastics of the major indexes did get to levels where bottoms have occurred. The put/call ratio is now 1.01. For now, I see no reason to step off the sidelines and enter this market. Cash is king!

This daily chart shows that the SPY no longer has an RWB pattern. The SPY needs to close (dotted line) above all of the red lines (shorter averages) to suggest a new up-trend. 

Same goes for the QQQ.

With a high put/call ratio and a low reading of T2108 the bottom of this decline could be near. The daily 10.4 stochastics of SPY and DIA are almost below 20 but the QQQ is still too high, at 30.  A large down day on Tuesday (predicted by tonight’s futures) may bring all of these indicators to extremely oversold levels. Meanwhile it is nice to be safely in cash in my trading accounts. Why did I go to cash last week? Because the few buys I had recently made acted weak after their break-outs. In a healthy market break-outs should move up quickly. David Ryan has written that many of his best trades gave him a profit from day one. If I buy a stock at the proper pivot point, if the stock does not rise the set-up has failed and I exit.

For what it is worth, the huge recent black volume spikes in the chart of the dollar index below indicate institutional buying and suggest the dollar may be bottoming. Higher interest rates would support the dollar.