A pivotal week coming-sitting on the 50; GMI: +2; WPM reveals short term deterioration; cash and puts

This week should reveal whether this short term decline Changesgmi819 deepens, or terminates.  The main indexes I follow are sandwiched in between their 30 and 50 day averages, and resting just above their 50 day averages.  Note from this chart that the QQQQ has closed below its 10 day average (dotted line) for the last 11 days.  The QQQQ has also closed below its 30 day average (red line) for the past 4 days and the 10 day is crossing below the 30 day.  Note that during the past 4 days the QQQQ has closed between the red line (30 day) and the green line (50 day).  The prior decline ended at the end of June when the QQQQ held its 50 day average.  Will it hold again?

The chart above also shows the changes in the GMI (click on chart to enlarge).  The GMI is now +2, but the IBD  Growth Mutual Fund Indicator is very close to turning negative, demonstrating that even the growth fund pros are having trouble making money.  This is a bad omen. Gmi819_1There were also only 38 successful 10 day new highs and only 62 new yearly highs Friday, in my universe of 4,000 stocks.  Only 35% of the Nasdaq 100 stocks rose Friday, along with 55% of the S&P 500 and 40% of the Dow 30 stocks.  We are now in the fourth day (D-4) of the decline in the QQQQ.

The WPM reveals the depth of the weakness in the short term indicators.Wpm819  Compared to the week ending on 8/12, all 5 indexes now trade below their 30 day averages. Furthermore, there have been considerable declines in the percentage of their component stocks that closed above their 30 day averages.  The biggest decline occurred in the small cap stocks– only 22% of them closed above their 30 day averages, compared with 42% a week earlier.  A large decline also occurred in mid cap stocks (31% vs. 47%), although the remaining 3 indicators also showed declines.  In contrast, the longer term indicators hardly budged, demonstrating that the market is till in a general up-trend.

So, what do I discern from the above?  The short term trader should probably be in cash or short.  Since August 2 when the QQQQ peaked, this Nasdaq 100 ETF has fallen 3.19%, and 73% of its 100 component stocks have declined–36% of these stocks declined more than 5%.  Why fight these odds?  This is also not the time to buy stocks breaking to new highs.  The longer term trader who tends to stay in stocks for months probably can retain positions for now, with the protection of defensive stop losses.  It remains to be seen whether this short term weakness will turn into a major decline.  Such a development would be evident to me if the GMI goes to zero.  As for me, my IRA is currently 90% in cash with my remaining funds in September and October puts.  Housing, autos and mortgage securities are in downtrends, for now.  I always become more cautious during the September/October period.  Have a great week.

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

GMI declines to +2; only 20% of stocks in up-trend; GOOG and MO

The GMI declined to +2 on Thursday as my short term indicators turned bearish.  Gmi818_1 There were only 66 new yearly highs and 47 successful 10 day highs.  For now, buying stocks at new highs is a high risk strategy.  The daily QQQQ and SPY indexes are now negative.  We are therefore in day 3 of the QQQQ decline (D-3).  Less than one half (48%) of the stocks in my universe of 4,000 stocks closed above their 10 week averages and the percentage of stocks in a short term up trend declined to a new low of 20%.  As long as the remaining 2 indicators remain positive, I consider the market to be in  a short term decline.  I hold only put options and cash in my IRA.

As you know, with the announcement Thursday of plans to issue more stock, GOOG declined again.  Could we have anticipated this bearish reaction?  I am posting an updated "Naked Chart" of the type I posted on 8/14.  I wrote on 8/14:

"In my previous post, I showed you a "Naked Chart" of GOOG displaying the 10 and 30 day averages without the prices.  It was clear that the up trend in a stock (GOOG as an example) was clearly shown by the 10 day average’s being consistently above the 30 day average.  Well, over the past 2 weeks many of the leading stocks, including GOOG, have shown a negative cross-over with the 10 day average now being below the 30 day average."

Here is GOOG’s chart as of Thursday’s close.  Goog818 For the first time since the stock rallied in April, its 10 day average remains consistently below its 30 day average.  The lesson to be learned for me is:  Do not buy or hold any stock where its 10 day average is consistently below its 30 day average.  Such stocks are my short candidates, especially after a long period where the 10 day was above the 30 day, as in GOOG.

MO rallied sharply Thursday on a favorable court judgment.  Could we have spotted the reversal in trend days before the news came out?  You be the judge. ……………………………. Mo818

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Computer problems-GMI +4

Hope to be back up by the weekend–my laptop died.

With oil related stocks weakening (XOM, CME, LUFK), this market could rebound soon.  Still, indicators are weak but not convincingly bearish.  A decline tomorrow would be significant to my indicators. Good time to stay away from this market until it develops a trend.

Gmi816_1 Am back up Thursday morning!

GMI decreased one yesterday because there were only 85 successful 10 day highs.  The two daily indexes will turn negative tonight if the QQQQ/SPY  ETF’s close weak today.  Note that only 23% of the stocks in my universe of 4,000 are in a short term up-trend.  We are at a critical point in determining whether this decline will end shortly or turn into something bigger.  This in not the time to place large bets.

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

GMI declines to +5; only 27% of stocks in up-trend; Cramer commits hara-kiri over DKS; a polar bear?

Well, it did not take long to see where all of this short term weakness is headed. I said in my post on Sunday night that during my 2 week vacation my short term market indicators had weakened considerably.  And now, as of Tuesday’s close, only 27% of the stocks in my universe are in a short term up-trend, down from 61% on 7/29, and 68% at the peak on 7/14.  This indicator had never fallen below 40% since I started tracking it at the end of June.  At the bottom of the QQQQ decline on July 7, this indicator registered 48%.  In other words, the market weakness we are seeing now– near the beginning of a decline– is greater than we saw at the end of the previous decline–something to ponder.

Gmi816 The GMI declined Tuesday because there were only 59 new yearly highs.  While there were 122 successful 10 day new highs, this represented only 24% of  all of the 511 stocks (in my universe of 4,000) that hit new highs 10 days ago.  Clearly, buying stocks at new highs 10 days ago has not worked out well, if one held on to them.  My favorite gurus (see Boik’s book at right) have written that when stocks breaking to new highs fail, it portends general market weakness–as if we need more evidence.  There were 28 new lows Tuesday, highest since July 7.  Only 8% of the Nasdaq 100 and S&P 500 stocks advanced , along with 13% (4) of the Dow 30.  Only 53% of stocks closed above their 10 week averages, down from 83% on July 20………………………

Cramer committed hara-kiri (I looked it up!) Tuesday night over his recommendation on DKS, which fell 16%.  He also fessed up to recommending ANF (-3.65%).  I give him a lot of credit.  How many of the talking heads ever come back quickly to discuss their ill founded advice?  However, I think Cramer exemplifies the hazards of  eschewing charting and technical analysis.  If one makes his decisions based solely on earnings, industries and assessments of economic trends, one can get trapped in losing situations.  I hate to be a told-you-so, (no I don’t) but if Cramer had been following my rule of not buying stocks when their 10 day average is below their 30 day average, he and his followers could have avoided this catastrophe.  Dks This "Naked Chart" shows that DKS had a negative crossover of its moving averages last Wednesday.  Moreover, the QQQQ has been weakening for several days (8 straight closes below its 10 day average) and he should have been raising cash and becoming defensive, rather than recommending new purchases.  Last night, Cramer’s only rec was Wachovia Bank (WB), because it is boring and pays a dividend.  Technically, it looks sick to me……………….

LUFK and BBY both had failed bounces and I was stopped out of them Tuesday with small losses.  I love to buy on a bounce and place a sell stop just below the bounce.  I end up with very small losses when I am wrong.  But my puts made $$ yesterday.  Stocks I mentioned in my prior post weakened nicely, including HD, the QQQQ ETF and housing stocks.  Even GM is slowly tanking–wonder why?  I have only one long, FTO, and I suspect I will be stopped out today.  Isn’t it interesting that even oil stocks declined Tuesday. People don’t use as much oil in a weakened economy.  And the people I have talked to seem to be increasingly reacting to the high gasoline prices.  Ask folks around you.  We will probably see the negative economic effects first in the retailers like WMT, which caters to customers at the lower socioeconomic levels, but the higher oil prices may affect more of us in the coming winter when we get our heating bills.  Maybe we should expect a polar bear market?

I don’t want to appear too bearish.  Only my short term indicators are weak.  I have no reason to suspect a longer term decline–yet.  Another down day today will reduce the GMI two more points, to 3.  It would have to go all the way to zero for me to become really bearish.  For now I will simply ride this short term decline.

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Monday was better; GMI: +6; CME and GOOG decline; negative trends in housing; FTO, LUFK

Monday was a better day and the short term stats improved a little.  The GMI remains at +6.  There were 166 successful 10 day new highs and 138 new yearly highs.  There were only 21 new lows in my universe of 4,000 stocks.  Gmi815 While the percentage of stocks above their 10 week averages increased 2 points to 62%, the percentage in a short term up trend declined 2 to 32%.  Between 63%-67% of the Nasdaq 100, S&P 500 and Dow 30 stocks advanced Monday.  The DIA and SPY climbed back above their 10 day averages–a good sign.  The QQQQ closed just below (.06) its 10 day.  Today is a very important day.  If these indexes close below their 10 day I will become more defensive and it will probably only be a short time before the GMI begins to decline.  The key is not to become too bearish as long as the GMI holds.  There is plenty of time for me to go short after the GMI gives the proper signal.

Sunday night I mentioned that CME and GOOG appeared to be weakening.  CME cracked Monday, down 18.96 (-6.5%) and GOOG fell 5.72 (-1.9%).  I don’t like to see the leaders weaken.  Many of the gurus I admire (see Boik’s book at right) have said that after the leaders of the market crack, the whole market is likely to decline.  So I am waiting with a mixture of longs and puts in my IRA.  LUFK and FTO were strong on Monday, and BBY may be bouncing (I own these.) Note also that some of the housing stocks (for example PHM, TOL, HOV)  are showing a negative cross-over of their 10 day average below their 30 day average, for the first time in months. In a few days we will know whether the short term weakening we are seeing will lead to a larger decline, or a resumption of the general market’s advance.  Have a good day.

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