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GMI goes to the max: +6, CME, QSII, CMN

@ 11:15 pm

Well, it finally happened–the GMI (see archive: 4/26 post) hit +6! Gmii601 For the first time since we began to post the GMI, there were more than 100 successful 10 day new highs–stocks that hit a new 52 week high 10 days ago and closed higher today than 10 days ago when they hit their highs.   This result assures us that buying   stocks at new highs has become profitable and relatively common.   In contrast, there were only 10 “successful” 10 day new lows. (Shorting new lows is not the way to go now.) There were almost 13x more new highs today than new lows (194/15) in my universe of almost 4,000 actively traded stocks.   And 71% of the Nasdaq 100 stocks rose today, 54% of the S&P 500 stocks and 50% of the Dow 30 stocks.   The Nasdaq tech stocks continue to lead this market.

The GMI indicates this market has begun a solid up trend.   How long will it last?   No one knows.   The QQQQ index is in its 19th day of the up trend (U-19).   Many of you may think that you missed this market.   However, the last time the GMI indicators looked like this, the QQQQ up trend lasted about 92 trading days (August, 2004 through January, 2005.) Of course, the rise could end tomorrow–past performance does not predict future results…………………………………….

A reader alerted me this week to the growing strength in CME, one of the big winners of 2004. Cme(I meant to mention CME last night–sorry.)   Often times a stock doubles or triples and then when it looks like it has topped out I forget about it only to see it surge back to new peaks.   CME quadrupled and then hibernated for 4 months and then started up again in the past month (see monthly chart).   So I decided to make a pilot buy of a very small number   (30) of shares on Tuesday morning at the open at 212.20.   I then placed a sell stop in below the prior day’s low at 209 and a buy stop in above the day’s high around 218, thinking it might rise to that in a few days.   If it fell, I was only risking 3 points. Well, CME broke through today and I automatically bought more around 219 and the stock closed at a new all time high of 232 today on very high volume.    This is the type of action one gets in rockets in a strong market. Note that this trade all began with a modest 30 share pilot buy, so that I had minimal risk and only added more when the stock moved up nicely…

Now for the ugly dogs of the day. In spite of a powerful market, sudden declines happen.   We must protect ourselves from these situations by using stops, by making pilot buys and gradually accumulating   shares, and by not   concentrating more than 20% of our funds in one position.

One Foolish writer said   that people were offered QSII   today at a discount. I say that owners of the stock were decimated by the stock’s sudden 15%+ drop today–no welcome bargain to them.Qsii Here is a stock that was rated #1 in the IBD 100 list 2 weeks ago and rated #2 last week with an A+ composite rating, and EPS rating of 99 and an RS of 98, that just fell apart on huge daily volume without any news. I was stopped out of this stock today at about 55.95.   I had placed my stop below the low of the day on May 18 when the stock went to a new high on considerable volume.   I figured if the stock fell below that day’s low it was a bad sign.   So, I was automatically sold out at 55.95 and the stock closed at 50.91 today after hitting a low of 49.80.   I could find no advance technical warning of this decline.   So, even stocks with great IBD ratings can suddenly drop–a perfect reason why one must slowly accumulate a position and not concentrate most of one’s funds in one stock.

A die hard O’Neil follower would say that if the stock had been bought at the proper pivot point, around 52, a trader would have had a minimal loss today.   Note that the stock did stop at its 50 day average today. One way to play this stock, if I still held it, would be to place a sell stop below today’s low, around 49.70.   At the end of April, QSII had a similar large decline but bounced back the next day.   After a sudden one day decline, it often works to place the sell stop right below that day’s low.   We’ll see if it works for QSII tomorrow…

Another train wreck today that was brought to my attention by a reader, was CMN. (Click on chart to enlarge.)Cmn Here was another stock with high IBD ratings (Composite of 98, EPS-97, RS-96), that fell 41% today. I did not own it, but I like to think I might have seen the technical warning signs.   First, there was that big decline on huge volume in early April.   Second, notice the low volume, consistently below the 50 day average (blue horizontal line) during the subsequent rebound, until today. Finally, note that the Money Stream value (red horizontal line) never regained the level it reached prior to the April decline.   MoneyStream is a proprietary indicator in the TC2005 software that is a modified on balance volume indicator.   It basically is a cumulative total of the volume on up days minus the volume on down days.   There is no way a stop loss order would have prevented a huge loss today, given that the stock opened far below yesterday’s close.   The only people who got out with less of a loss are those who sold the stock in extended hours trading, Wednesday night.   On Thursday, after it was too late, the reason for Cantel’s decline was announced. Looks like someone may have known something about this contract termination in early April. (Don’t you wish you could track down those sellers and question them, under oath, about their fortuitous early sales.)

Googlemania, GMI +5 and growing stronger

@ 11:01 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Everywhere I turn I find articles on GOOG. Cramer was on CNBC today and on his MadMoney show this evening, taking credit for being an early believer in this stock.  (I have to admit I became interested in GOOG after listening to Cramer’s reasoning about projected earnings and suitable PE levels.) Goog601  This is all fine, but when the bandwagon gets so crowded I become a little skeptical. And when the chart starts to go into a vertical rise on the highest daily volume in 4 months, I need to take stock (pun intended).  The stock is very far from its 50 day average.  I think GOOG is an excellent long term play.  And I suspect that there will be serious buying at the end of this month (quarter too).  Cramer mentioned this possibility today, too–he must have read my post yesterday about mutual fund end-of-quarter window dressing.  So, even if we get this end of the month surge in GOOG, we still could get some weakness before then.  I do not know what will happen, nobody does.  Therefore I intend to hold my shares and not make new purchases until the stock reacts a little or forms a plateau.  As you know, I began SLOWLY accumulating GOOG in April after that delicious gap up.  Throughout the rise, I have my stops in place just in case something ugly happens. So, for now, I will just watch the action from the sidelines…………………………….

The GMI remains at +5, but is getting close to a +6.  Gmi601 This is because there were 243 new 52 week highs in my universe of 4,000 stocks.  That means we will probably  get 100 successful 10 day highs soon. The Nasdaq 100 stocks (measured by the QQQQ) is now in the 18th day of the uptrend (U-18).  There were more than 10 times as many new highs today than new lows in my universe of stocks.  In addition, 81% of the Nasdaq 100 stocks rose, 80% of the S&P 500 stocks and 77% of the Dow 30 stocks.  There were 54 successful 10 day new highs and only 10 successful new lows.  (See my post on 4/26 in the archives for components of the GMI.)  The train has left the station.  The question remains as to where and when the train will stop and/or reverse. Right now, I remain comfortably long stocks with my stops in place just below suitable support levels.  I hope all of you are profiting from this uptrend and are not resisting it.

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.

A mixed day, trend-followers, GMI: +5

@ 10:00 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Today was a mixed day, and the GMI remains at +5, as we complete day 17 of this QQQQ uptrend (U-17).  Gmi531 There were 35 successful 10 day new highs and only 11 "successful" new lows.  More than 70% of the 49 stocks that hit new highs 10 days ago, closed higher today than they closed 10 days ago.  There were 155 new 52 week highs in my universe of nearly 4,000 stocks, and only 23 new lows.  What is somewhat troubling is that only 36% of the Nasdaq 100 stocks rose today, 32% of the S&P 500 stocks and only 7% (2) of the 30 Dow stocks.  So, while there were a large number of new highs, most stocks did not rise today.

Still, some of the stocks I have been discussing hit new highs today, including GOOG, BOOM, NSI, MW, PNRA  (I own some of these).  A sign of a bull market top is weakness in the leaders.  We will therefore continue to monitor these stocks for any signs of weakness–clearly they are still very strong.  Moreover, given the strength of the GMI, I am not in a defensive mode yet.  It will be interesting to see whether the market can bounce back tomorrow……………………………………..

In my prior post, I said I was an orthodox agnostic when it came to believing in a rationale for market moves.  Since then I read an interview in Technical Analysis of Stocks & Commodities, June edition, with Michael W. Covel.  Mr. Covel recently published the book, Trend Following: How Great Traders Make Millions in Up or Down Markets. In the interview, Covel says, "A trend-follower doesn’t need to know the "why" of market behavior during trends.  They just need to know the price.  A lot of trend-followers don’t even want the name of the markets.  They just want the price data and they can tell you whether they can trade it by the price data alone.  I think this kind of mentality is odd to most people."(p. 55)

I guess Darvas, Livermore, O’Neil and a host of other gurus would be called trend-followers today.  I don’t feel so weird about my orthodox agnostic comment anymore.  I am in good company.  However, Covel is describing the most extreme case of trend following, someone who needs no fundamental information about a stock other than its price and volume–an approach we call in my field, blind empiricism.  Most of the successful gurus I admire wanted to trade with the trend, but also factored in other information about the company’s profitability and industry.  By the way, I was disappointed with Covel’s book.  It merely makes the case that specific trend-followers have been successful, without providing any details of how these people achieved their success. Borrow it from your local library.

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.

GOOG, MW, Other rockets, fabricated fantasy revisited, GMI +5

@ 12:00 am

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

The GMI (see post 4/26) remains at +5 and the QQQQ uptrend is in its 16th (U-16) day.Gmi529 There were 131 new 52 week highs (in my universe of close to 4,000 stocks) and only 14 new lows on Friday.  The successful 10 day new high index was quite low, at 16.  Nevertheless, most (16/26) of the stocks that hit new highs 10 days ago did close higher Friday than they closed 10 days earlier. While there were 21 successful new 10 day lows, they constituted a minority of the 117 stocks that hit new lows 10 days earlier. Thus, betting on new highs 10 days ago tended to be more profitable, even though there were not many……………………….

I am still amazed by the pundits who are remaining skeptical about this rally, including Alan Abelson, the author of Barron’s Up & Down Wall Street column.  As I wrote on Thursday, this has been a good tradeable rally and if you somehow missed it or are still resisting it, you may want to re-examine your methods and your psychology. Why do so many people need a reason for the market to rally.  If there are good reasons, they almost always come out after the move.  If the train or rocket is moving, why should we fixate on an explanation–just jump on board.  I guess I am an orthodox agnostic when it comes to believing in a rationale for stock movements.  Meanwhile, the IBD Mutual Fund Index is rising nicely above its 50 day average, signifying that growth oriented funds are rising–so someone is buying growth stocks…………………………………………….

I told you I started buying GOOG after it gapped up around 221 in the last week in April.  GOOG closed near its all time high on Friday at 266, up +24.39 for the week. Goog3   I am starting to become worried that too many pundits are recommending GOOG–it even became the number one stock in IBD’s 100 list in Tuesday’s edition. While I have told you that I disavow all stock scenarios, let me suggest one.  I would not be surprised to see GOOG close around 300 by the end of June.  The end of the quarter brings that famous "window dressing" period when mutual fund managers are rumored to load up on the current quarter’s winners so that they can look smart when they publish their quarterly reports listing their holdings.  (If this misleading practice really happens–and John Bogle told me a few years ago that it does not, why doesn’t the SEC require that all funds list the date and price of all stocks purchased in the reporting quarter?) Anyway, since GOOG was initially offered to the public in a dutch auction and most mutual funds could not load up at the initial offering price, maybe there will be a stampede in June by the fund managers trying to accumulate the high flying GOOG?  Hence my hunch that $300 per share may be attainable in June………………………..

I talked to you last post, about Peter Lynch’s strategy of finding possible winners by scouting the shopping malls.  It occurred to me that there is a store I often visit that seems to offer the best combination of service and prices in men’s clothing.Mw   I like their stores much better than the department stores and their prices are more reasonable.  It just so happens that their stock, MW, has popped up on some of my market scans.  Mens Warehouse meets my criteria of a launched rocket.  The company gapped up on large volume after it announced its earnings on May 18 and declared a 3 for 2 split.  MW is also rated A+ by the IBD stock checkup.  So, MW is a winner.  The question is where to buy it.  It clearly is extended, far above its moving average.  If I were to take a chance on MW now, I would buy a few shares on Tuesday and place an immediate sell stop below the last mini reaction low of 49.40, perhaps at 49.20 or 48.95. If I got stopped out, I would buy it again if it bounces near its 50 day average.  (This is not a recommendation but only for illustrative purposes.)

My rocket scan picked up several other promising stocks, all rated A+ by IBD:  FORD, PTC, LCAV, FTO, QSII, HANS.  Check them out. (I own one of these.)  If the rally continues, I may bet on more of these rockets……………………

I’ve been thinking about my comment on fabricated fantasies on 5/24. I wrote, "What if Darvas is right?  All of these people and institutions who are paid millions of dollars for their financial advice are simply involved in a world of fabricated fantasy."  The more I thought about it the more I thought I was unduly critical of the fundamental approach.  In a sense, we are all looking for the criteria for picking winning stocks, we just employ different criteria.  The technician uses mainly price and volume patterns, while the fundamental analyst uses estimated value and economic statistics.  This is what I have realized since my post:  both strategies fit well within Darvas’ concept of the market as a big casino.  We are all using our tools to predict other persons’ buying our stock from us at a higher level.  Both groups are playing the same gambling game he described!

By the way, fundamental analysts sometimes ridicule technicians’  search for "momentum" stocks.  Correct me if I am wrong, momentum means movement, and we all want a stock that will move up quickly after we buy it.  What’s so wrong with momentum? Stagnation is deadly and costly in life and in stocks…………………………………………

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.

Cramer and limit orders; ORCT and PNRA; GMI back to +5

@ 9:05 pm

Tonight, Cramer was upset that some of his listeners rushed out to buy Costco at the open this morning, based on his recommendation the night before,  and then got burned by buying at the high of the day (COST opened at 46.32 and closed at 45.49).  He screamed tonight that no one should use market orders–that brokers use market orders as a way of ripping off customers and selling to them stock  at an overly high price.  (A market order tells the broker to buy the stock at the next best price offered, whatever it is, without any limit.  In a limit order customers specify the maximum price they will pay to buy the stock.  If the stock opens higher than the limit price the broker can only buy the shares  if the stock comes back down to the limit price.)

One of the gurus I admire, I do not remember which, once said that fortunes have been lost by persons trying to hold out for the last 1/8th of a point on a buy or sell order.  If COST had opened at 46.32 and never traded lower today, a limit order below that price would never have been executed and the customer would have lost out on an explosive rise.  I therefore almost always trade using market orders. If I want to buy a stock I want to buy at the next best price.  I do not want to miss out on a move.  Similarly, if I want to sell because I think a stock might decline, I want to get out immediately.  I don’t worry about a few cents either way.  It could be suicide to put a limit order in on a sell and not be able to sell because the stock never traded at my limit price.  BUY AND SELL AT THE MARKET!  When I place a stop loss order at a price below which the stock is trading, it means that if the stock falls to that price,  get me out!

I am going to give you an example of a trade I made today that should illustrate these principles.Orct   One of my market scans alerted me to ORCT–a potential rocket.  Note the huge volume and rises in late January and early April.  On May 16, I purchased some of the stock (see "Buy" on chart) when I saw the stock bouncing from its moving average.  I immediately placed a sell stop (stop loss order) in to sell the stock if it fell below its moving average.  The  stock peaked on the day after I bought it and slowly returned to its average.  After this peak, I placed a stop order to buy more shares if the stock should reverse and trade above the peak of  22.90. Thus, I placed a buy stop order at 22.95 which meant that if the stock traded at 22.95 or higher, the order would become a market order to buy ORCT at the next best price.  However, before that second buy order was triggered,  my stop loss order automatically sold my ORCT shares on 5/23 when it broke below its moving average.  I was also tired of seeing the stock go nowhere in a strong market.

Now here is my point.  I did not get angry or discouraged at the way the stock had acted.  I simply automatically took my small loss.  But, just in case the stock should again reverse and break through the peak at 22.90, I left my buy stop order in place at 22.95.  How many times have I been shaken out of a stock only to have it immediately turn around and go up.  And wouldn’t you know, today, without my having to pay any attention to it, my order to buy ORCT was triggered and I bought some at 22.98.  The stock then rocketed to a new high on huge volume and closed at 24.45 today.  My stop order to buy automatically got me into the stock at the breakout point and had I used a stop limit order to buy ORCT (an order that becomes a limit order to buy at or below the limit price once the stock trades at the stop price) I might have missed climbing aboard. Some of my best trades have come from buying back shares that I had recently been scared out of by a sudden decline, when they bounced back……………………………………………

It is the greatest irony that my IBD Meetup group meets each month at the local Panera Bread shop and exchanges ideas on the next great stock.  Last night our surviving triumvirate (see yesterday’s post) was sitting at a table watching the long line of patrons.Pnra   Do you know the Peter Lynch (the successful manager of Fidelity’s Magellan fund in the 80’s)method of picking stocks?  He talks about visiting malls and observing checkout lines to see which companies are thriving, as a way of finding promising businesses.  Well, it turns out that while we were looking for winners in our chart books, a major winner was right under our noses!   PNRA (click on monthly chart to enlarge) rose about 14 fold between 2000-03 (yes, during the collapse of the Nasdaq), and then plateaued for 15 months.  In January, 2005, it burst out to a new high and is now in an uptrend, hitting a new high of 63.86 today.  Panera Bread may be a great place to make some dough in the months to come. (I couldn’t resist the pun.)

  Over the years I have noticed the wisdom of Lynch’s method.  As an avid Mac user in the early 80’s I noticed that all of the software came from the same company–something called Microsoft.  I called my broker when it went public and asked to buy some shares at the offering price of $26.  He laughed, and said I would have to buy it when it began trading.  When it opened around $40 I figured I had missed the boat.  How little I knew back then.  I didn’t make the same mistake with GOOG.  And I bought XMSR at around $2 because my son told me how great satellite radio was.  My point is to look around at the products that people in your life are enthusiastically embracing (ever hear of IPOD–too late now) and research the company immediately.  All of us have special interests and domains that we know well and which can alert us to the next winner…………………….

Do you wonder why I show you the GMI every day?  The reason is to remind you that a crucial key to successful trading is to be in harmony with the general market trend.Gmi526    This is the "M" in the CANSLIM approach and it is a critical element in the strategies of all of the gurus I have studied. The GMI regained +5 today because there were more than 100 stocks that reached new highs out of my universe of 4,000 stocks.  The important thing to note is that 85% of the stocks in the Nasdaq 100 rose today along with 79% of the stocks in the S&P 500 and 77% of the Dow 30.  Aren’t our chances of making successful purchases greatly increased when we have such company?  If you bought a Nasdaq 100 stock on Wednesday, you had an 85% chance of having a profit by today.  Since May 5, the QQQQ (an ETF that tracks the Nasdaq 100 stocks) has climbed 6.8% and 88 of the Nasdaq 100 stocks have increased and 28 of the 100 have increased 10% or more.  If you are still shorting or are short tech stocks, these are the steep odds you are fighting.  I am making $$$ in this market, and it is all because I am in synch with the trend. 

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.