GMI:+2; More new lows than highs; IBD growth funds falter; Short or in cash

The market internals deteriorated further Wednesday.  Only 31% of stocks in my universe of 4,000 are in a short term up-trend and 39% closed above their 10 week averages, the lowest reading since I began tracking this indicator last June, and down from a high of 84% in July.  Gmi921 The GMI is at +2.  There were more than 100 new highs yesterday (153) and the longer term QQQQ weekly indicator is still positive.  While there were 104 successful 10 day new highs, this total represented only 36% of all new highs 10 days ago–so I consider this indicator to be questionable (?).  There were more new lows (158) than new highs (153) -a very bad omen.  Most telling, the IBD growth mutual fund index is now below its 50 day average, indicating that the pros are faltering now too.  I never make money trading growth stocks when the growth managers aren’t successful.  The percentage of stocks closing within 5% of their 52 week highs is now down to 20% while those near their lows increased to 10%.  Only 13-22% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 advanced on Wednesday….

For me, this is a time to be short or in cash.  According to my indicators, we are much closer to the beginning of a decline than to the end.

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GMI declines to +3; Going to cash or short

The GMI declined to +3 on Tuesday. While there were 213 new highs in my universe of 4,000 stocks, there were only 55 successful 10 day new highs. There were 81 new lows, the most since I began posting them last May.  Gmi920 Only 40% of stocks are in a short term up-trend and only 46% are above their 10 week averages.  While 29% of the Nasdaq 100 stocks advanced, only 19% of the S&P 500 and 13% of the Dow 30 stocks rose.  The QQQQ and SPY daily indexes have turned negative.  The market is in the beginning of a short term decline (D-1), or worse.  Oil and gas related stocks dominated the new high list and housing stocks continued to break down………………. With the GMI weakening, the odds are against taking new profitable long positions, especially in growth stocks at new highs. Going to cash or short………………..

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GMI: +6; Teetering on support

The market weakened on Monday and is sitting on support.  The GMI is at +6 and there is no change in my outlook since my prior post.  Only 10-17% of the stocks in the Dow, Nasdaq 100 and S&P 500 advanced Monday.  We had the highest number of new lows (62) since July 29.  But there were still 267 new highs, suggesting that there is strength in a concentrated minority of sectors (mostly energy related or metals).  Gmi919 The percentage of stocks in my universe of 4,000 that are in a short term up-trend is now at 46%.  This is the 10th day of the QQQQ up-trend (U-10) and this trend is vulnerable to a reversal if there is a meaningful close today below the short term moving averages.  It should be an interesting day.

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Critical week ahead; GMI: +6; little change in WPM; Longs and shorts

This could be the most important week technically for the market since the QQQQ bottomed on August 29.  The primary indexes as measured by the DIA, QQQQ and SPY all tell me the same technical story.  But first I will review the GMI and WPM indicators.  Gmi916

The GMI has registered+6 since September 6, and Friday marks the ninth day in this QQQQ up-trend. There were 218 new yearly highs on Friday in my universe of 4,000 stocks. 61% (215/352) of the stocks that hit a new high 10 days ago closed higher Friday than they closed 10 days earlier.  Thus, traders buying new highs 10 days ago and holding on, had a better than even chance of having a profit by Friday’s close.  This is a bulllish sign because when stocks at new highs begin to falter, the market tends to weaken.  Another sign of strength in the leaders is that about three quarters (76%) of the stocks that doubled in the past year closed above their 30 day averages.   This strength in the leaders does not extend to most stocks. Only slightly more than one half (55%) of the 4,000 stocks in my universe closed above their 10 week averages, and  about one half (49%) remain in a short term up-trend.  Nevertheless, more stocks are within 5% of their yearly highs (29%) than their yearly lows (6%).

The WPM reveals no meaningful changes in the market internals since last weekend. Wpm916 All 5 indexes remain above their short term (30 day) and longer term (30 week) moving averages. Similarly, 50% or more of all of their component stocks remain above these averages.  The largest changes (declines) occurred within the midcap stock ETF (MDY).

So what is going in here?  As I read it, the up-trend is still intact in all of these markets.  However, the indexes came very close to violating their short term averages this week.  This QQQQ chart is almost identical to that of the SPY and DIA.  (The numbers in black show the changes in the GMI over time, click on to enlarge.)  Qqqq916 Note that the QQQQ bottomed in late August (point A) and then started a rise that topped out on Tuesday (B). On Thursday and Friday the QQQQ bounced off of the flat 30 day (red line) and rising 50 day (green line) moving averages (C), which have converegd.  The fact that these two averages are almost identical means that the market has basically not changed over these 2 periods (the average of the closes over the past 30 days is the same as the average over the past 50 days).  This is especially important because, similar to the behavior of Bollinger Bands, when the averages converge on each other, it often means that a significant move will occur once a direction is taken.  It is almost like a compressed spring, which expands quickly when released.  The fact that the 10 day average (dotted line) is above the other 2 averages is bullish.  The critical signal for me is whether the QQQQ closes and remains above or below its 30 day average this week. A close above point B on increased volume would be very bullish.  Remember, the technical pattern I have described is identical for the DIA and SPY. The direction of the entire market may be at stake………………………….

The safest strategy for now is for me to hold a watchlist of stocks to buy or sell after a definitive signal is given for the general market trend.  Remember, most stocks go with the market trend and it is therefore safer to trade with the trend. I have run scans for weak and strong stocks. Among the short candidates I am watching are:  WYNN, TECD, CCL, WON, NEW , DECK, YHOO.   (Yes, even Yahoo looks sick to me now.)  Long candidates include:  AAPL, SMTS, KEYW and UPL.  Of course, I will only make these transactions after researching them more and I always place a suitable stop loss. 

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GMI: +6; market trendless; still short SBUX

The market barely held Thursday.  The GMI remains at +6 and there were 141 new highs Thursday. Gmi915  About one half of the Dow 30 and S&P 500 stocks advanced along with 39% of the Nasdaq 100 stocks.  Market internals weakened slightly.  We may have to wait until after the Fed meeting next week for the market to reveal its true trend.  Right now, I have reduced my long positions and retain my puts on SBUX.  This is not the type of market on which to place a huge bet either way. 

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