Dr. Wish

80% of the Dow 30 stocks have a daily 10.4 stochastics reading that is oversold–below 20.   This is the highest percentage since I began tracking this statistic last December.   In addition, the T2108 indicator is 17% (lowest since May 18th) and   the put/call ratio closed at   1.16% on Thursday.   A put/call ratio above 1.2% is always followed by at least a bounce.   The QQQ short term down-trend reached its 27th day on Thursday.   The downtrend that ended last June reached 44 days. There were 413 new lows on Thursday in my universe of stocks, the most since October 4 2011, when the market retested a major correction low. IBD still sees the market in a correction.

By now the decline is accepted and appreciated by everyone.   The percentage of advisors that are bullish has come well off of its highs, above 50%, and is now at only 38%.   I closed out my position in SQQQ and am now 100% cash in my trading accounts.   I want to assess the strength of the next   attempt to rally before I take another position.   The closer that T2108 gets to single digits, the more optimistic I become. The GMI remains on a sell signal since October 22.

This weekly chart of the QQQ since 2011 shows the GMI buy and sell signals. Note the low trading volume on this decline, compared with the volume at the August, 2011 bottom. Click on chart to enlarge.

My oversold indicator count is now 4 out of 4.   I am looking for a bounce.   For example, the T2108 is at 19%, heading towards an area where a bounce might occur and the put/call ratio was greater than 1.0 at Wednesday’s close.   I am still in cash and a little short. Since October 8, the first day I identified a new short term down-trend for the QQQ, the QQQ has declined -8.9% and SQQQ (3X inverse ETF for QQQ) has advanced +29.9%.   Since the GMI flashed a Sell signal on October 22, the QQQ has declined   – 5.7% and the SQQQ has advanced +18%.   Clearly the short term down-trend signal provided a better entry, but it is less reliable than the full GMI based signal (I think so but have never tested this hypothesis).   The leveraged index ETF’s   perform really well when I catch a multi-week trend move.   However, they can reverse quickly.

In cash and short.