All Posts

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

@ 12:01 am

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.

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

 

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

@ 12:25 am

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.

Back from vacation; GMI still +6; WPM shows below surface weakening; Many bearish cross-overs among leaders; Buying puts

@ 11:21 pm

I’m back from vacation—and suffering from jet lag.  But I think it is important to update the GMI and the WPM.  The GMI has not changed since my last post on 7/29 and remains at +6.  However, there are a number of critical signs of weakness in the markets.  Gmi812_1 While there were 159 successful 10 day new highs on Friday, only 35% of the 452 stocks that hit a new high 10 days earlier closed higher on Friday than 10 days earlier.  The 142 new yearly highs in my universe of 4,000 stocks was the least since there were 130 on July 18.  The SPY, QQQQ, and growth mutual fun indicators remain positive.  However, only 59% of stocks closed above their 10 week averages, down from 79% on 7/29 and the percentage of stocks in a short term up-trend declined from 61% to 34%.  Unfortunately, I did not track these indicators the past 2 weeks and cannot estimate the timing of these declines.  The QQQQ up trend is in its 26th day.  However, this index has closed below its 10 day average for the past 6 trading days.  Since this QQQQ rally began on July 8, the index never closed below its 10 day average–until beginning, August 5.  This is a sign that the QQQQ rally has weakened.

This table of the WPM shows what is going on beneath the indexes.  Wpm812_1 While the 5 indexes have remained above their critical 30 day and 30 week moving averages, there has been marked short term deterioration within each of the 5 indexes since I first posted the WPM on 7/22.  For example, only 48% of the S&P 500 stocks are now above their 30 day averages, down from 75%.  In fact, only 42%-50% of the stocks in these 5 indexes closed above their 30 day averages on Friday, compared with 60%-80% on 7/22.  There was little change in the percentage of the stocks in these indexes that remained above their longer term 30 week averages, with the exception of the lagging DIA, which strengthened (57% vs. 47%).

Putting it all together, while the longer term up trend seems to be intact, the short term trend has weakened considerably.  While it is not necessary that this short term weakness will lead to a change in the longer term trend of the market, remember that the short term moving averages, by definition, will always signal a change in trend before the longer term averages.  (The 30 day average changes faster because it measures the last 30 days of trading while the 30 week moving average spans 150 days.)

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. Goog812_1 Other stocks showing such bearish cross-overs include:  CME, SHLD, HD, GM, DSL, GDW, FRE, MW, SMTS, CKCM, LDG, HANS, XMSR, NKE.  These are just stocks that I have been watching or trading–there are many more.  When leaders of the market like GOOG, CME, SHLD and HANS all appear to be weakening, it is an omen for the general market worthy of our attention.  I have therefore been cutting back on my longs and am buying puts on some of the stocks listed above.  Time will tell if this is a temporary hiatus in the bull market, or a case of the bear waking from a completed hibernation.  Be careful out there.

It’s nice to be back.   Please send me your feedback at: silentknight@wishingwealthblog.com.