A Bad Day for the Bulls–WW-GMI +1

I hate to tell you this, but the GMI is back to +1. Index512  The Daily SPY Index fell back into limbo.  This is the most difficult, whipsawing market I have seen in a long time.  Tonight, I moved all of my sell stops very close to my stocks’ lows today.  I may end up 100% in cash by this weekend.

The Daily QQQQ Index is barely positive.  The QQQQ bounced off of its declining 50 day moving average today.Qqqq512f_1(click on chart to enlarge)  The fact that this moving average is declining means that each day’s price (the new day added to the average) is less than its price 51 days ago (the oldest day dropped)–not a good sign.  But the 2 largest spikes in volume the past 2 weeks are green, meaning they were up days–a good sign.  If the QQQQ does not close above its 50 day moving average soon, we are probably going to see a volatile continuation of the down trend.

Note that the 50 day moving average peaked in January and has been declining ever since.  Since the January peak through today, 61% of the NASDAQ 100 stocks have declined.  The last time we had a consistent rising 50 day average in this index was from September, 2004 until the top in January, 2005. During that rising period 76% of the NASDAQ 100 stocks rose. Maybe we should stay out of the NASDAQ stocks as long as the QQQQ is below its declining moving average. The SPY and DIA are also currently below their 50 day moving averages.  I’m talking myself into taking the short side again.

There were 87 new 52 week highs today in my universe of 4,000 stocks and 79 new lows.  There were 26 successful 10 day new highs and 93 "successful" 10 day new lows. The bears seem to have the edge in this market.  So I am not going to list any strong stocks today; they will only get slammed tomorrow or next week.

So I will show you an ugly chart of FDG that I almost posted last night.Fdg_2 (If I had, wouldn’t I look perspicacious tonight.) Note the huge red spikes in down volume.  Note the topping out of the moving average. Note the stock trades options.  If I were looking for a short, FDG looks ripe to me. Maybe all of the good news is out on FDG.  There was no news on FDG today telling us why it fell so much.  Remember, the bad news usually shows up in the stock price long before it shows up in the media. Perhaps FDG is getting a lump of coal  next Christmas.

It’s not fair to pick on FDG. So many of its cousins also fell today—BOOM, CCJ, NRD, ARS, to name a few.  In fact, the metals and mining industry chart shows that the entire group is sinking. Metals_1  I think the institutions are giving these mining stocks the shaft.  Sector wide selling bodes well for taking the short side on one of these stocks. Other sectors that were ugly today include silver, copper, metals, steel, aluminum and oil and gas.  What is happening to the commodities?

Send me your feedback at silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

The Bear Blinked, TZOO and Rockets–WW-GMI: +2

Things held today and the GMI rose to +2 (click on chart to enlarge).  Index51105 The Daily SPY index turned positive again.  There were only 35 stocks that hit a new high 10 days ago and closed higher today than they closed 10 days ago when they hit their new highs.  However, these 35 successful new highs represent 71% of the 49 stocks that hit new highs 10 days ago.  The fact that 71% of the new highs increased in value suggests strength in new highs.  The median increase of these 35 successful new highs over the past 10 days was +3.18% (meaning 1/2 of the 35 stocks increased more than 3.18%) and the increases ranged from +.14% to +22.19%.  The biggest gainer was our old friend, NSI (see post on 5/09/05), which hit a new high again today. Other successful 10 day new high large gainers are:  TZIX, GLW, ENWV, ITRI, LIFC, all of which gained at least 10% in the past 10 days.

The moral of the story is if we bought a stock breaking to new highs 10 days ago, we had a 71% chance of making a profit through today. With careful attention to these companies’ profiles and chart patterns, maybe we could even have selected one of the stocks that climbed double digits! (in 10 days)

A lot of the growth stocks I have been following acted well today.  GOOG, IVGN, NSI and CRYP all hit new highs today (I own some of these).  And even some of the boring large cap stocks like UPS, FNM, UTX, INTC, PG, AXP, C, PFE and QCOM seem to be turning. Interest511 This may be why the SPY has been relatively strong.  And the short term interest rate index we have been following has stopped rising. The Fed may be hibernating, and this upturn could be for real.

I have been telling you that when a change in trend occurs the indicators will often go back and forth until the turn has stabilized.  So, the GMI could turn down again.  In this type of market it is a good idea to stay mainly in cash and just nibble at a few stocks or the ETF’s that track market indexes (SPY,QQQQ,DIA).  Then, if the market declines, we can get out with minimal losses. If the rise is real we will have time to jump on board.

One of my stocks declined today and then bounced back with the market.  I was stopped out during the decline (my stop loss price was triggered and I was automatically sold out).  When the market and the stock came back, I bought my stock back at the end of the day and put a new stop loss order in below today’s low price.  Remember yesterday I said that the hobo must jump back on the train if it resumes in the direction he wanted to travel?  So, without emotion, I merely jumped back on the stock.  If I am wrong I will be stopped out again.  I have profited many times by buying back a stock that I have been scared out of.  The temporary decline often sets up a new rise. If you cannot accept a lot of small losses, you should not play this game.

Last night I talked to you about the rocket, TASR, which I successfully traded when it was rising to new highs.  Another rocket of the past year is TZOO. Tzoo I hope no one is buying this "bargain." From April through November 2004, TZOO climbed from $8 to $105.  That is a 13x increase in about 7 months.  I counted 14 weeks in which the stock made a new high during this period. The first time TZOO doubled took 3 weeks.  It took 13 weeks to double again, and then 10 weeks to double again.  Now maybe you  can see why I say that to find a stock that will double in a short time, find one that has already doubled in a short time. (see strategy post, 4/30/05)

So many people want to buy rockets but are afraid to buy a stock that is doubling and hitting new highs.  But that is how you find rockets!  Want to know some stocks that have doubled in the past 15 weeks?  Using the TC2005 program, I scanned my entire universe of almost 4,000 stocks in about 10 seconds and found the following 6 stocks:  ABLE, NSI, BOOM, DSTI, GEOI and FORD.  All of these stocks at least doubled in the past 15 weeks and are near their all-time highs.

These are not recommendations for purchase.  They are recommendations for further research and monitoring.  Do your own homework and if you buy stocks like these you should make small pilot buys and protect yourself with immediate sell stops. Remember, this market is not out of the woods yet and the bear is still stalking it. It is much more profitable to purchase rockets when the market trend is on our side. Let’s be patient.

Send me your feedback at silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.