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My Daily SPY Index turned negative on Wednesday, bringing the GMI to 3 for the first time since it was below 4 on March 19. (I posted "3?" on one day since then but I subsequently corrected it to 4 because I had jumped the gun on one indicator that required 2 days down before turning).  The short term GMI-S is now 38.  The Worden T2108 indicator is 31, still not in the range of past market bottoms, typically below 25.

I am content to remain in cash for now.  By following my gut I did miss out on further gains in GRMN and AAPL, but I am coming away with almost all of my profits from the past three months.  I am fortunate that many of my holdings were called away on Saturday because this week’s decline has hit these stocks hard.

I always play the odds, and the risk of being long appears to me to be too high for now.  The SPY and IJR  look very weak, but the QQQQ and DIA are behaving relatively stronger for now.  Two daily closes of the QQQQ below 48.50 and the DIA below 136.30 would signal an imminent decline.  Perhaps it would be best to just take August off, as many traders do.  After earnings are out there will be little good news to propel stocks higher.  And that ominous September-October period is just around the corner.

Please see my disclaimers on my prior post.

The market has weakened considerably, with the GMI now at 4.  The Worden T2108 indicator is now at a new low with 32% of stocks above their 40 day averages, still above the level at which bottoms occur (below 25%).  There were 342 new 52 week lows in my universe of 4,000 stocks and only 91 new highs.  The brokerage stocks are getting slaughtered, suggesting that the general market and underlying financials are weak.  This is not the time to be brave.  I am in cash with a small position in QID in case this decline continues.  QID goes up twice as much as the QQQQ falls.  Be careful.

The GMI is still 6, but I am troubled by a few things.  First, there were more new 52 week lows than highs in my universe of 4,000 stocks on Friday, 161 vs. 134.  The number of new lows was the highest since 163 on August 10, 2006, when the summer market decline bottomed out.  The new low list is filled with banks, REITs, builders and financials.  During a bull market, stocks like LEH and MER  and GS and SCHW should be soaring, not in a free-fall. The Worden T2108 indicator is now at 44, down from a rebound to 55 from 34 about three weeks ago.  Finally, weakness in GOOG after its earnings were released on Friday was the first big crack among the market leaders. So, will AAPL when it releases its earnings on Wednesday follow the lead of ISRG and RIMM, or that of GOOG?  A collapse in AAPL would signal to me that the up-trend is almost over.  Jesse Livermore cautioned that when people stop bidding up the leaders, then they soon stop paying up for the other stocks and the market tops…..

Thus, while the market trend remains up, I am content to stay largely in cash this week; most of my shares were called away on Saturday.  There will be plenty of time to take on new covered call positions if stocks hold support this week.  I am too cautious to fly mainly on instruments (my indicators) this week and prefer to listen to my nervous gut.

See my disclaimers on a prior post.