General Market Index (GMI) table

I have lived through many market declines since the 60s. The current decline is small and yet the omniscient media cry out that a market crash has occurred. No one knows how long the current decline will last and it is possible that it is at the beginning, rather than the end. I have to wait until Mr. Market signals the beginning of a new significant up-trend. Until then, I remain largely in cash and willing to wait. Very few stocks are reaching all-time highs, so the odds are against my profiting from buying such break-outs now.  As you know, I prefer stocks trading at ATHs.  There were only 8 such US stocks, out of 6100, on Friday. I always look at the list each day, however, because when the market does turn, new leaders appear among the stocks breaking out to ATHs. That is how in 2009, after the market debacle, I found GMCR making an ATH, a green line break-out, GLB, which then became a 13 bagger. Think about it. If a stock can climb to an ATH after the market has been decimated, is that stock not showing incredible relative strength? Traders knew something. GMCR was launching its Keurig coffee makers and the stock’s action told me traders knew something.

When the market turns, I will see the 10 week average of the major indexes rising above their 30 week averages. The first sign will occur if the major indexes can close back above their critical 30 week averages. See the weekly chart of SPY below. The gray line shows the weekly closes and the first sign of weakness is a close below the 30 week average, indicating a possible Weinstein Stage 3 or 4. When the 30 week average (solid red line) turns down, it tells me we are likely in a major Stage 4 decline. I know this rule seems too simple, but it has helped me to avoid huge declines when the market has swooned.

I have shown repeatedly that buying the triple leveraged ETF, TQQQ,  in a QQQ short term up-trend beats almost all individual stocks. The same can be true for buying the inverse ETF, SQQQ, on Day 1 of a QQQ short term down-trend. The problem is that this is very difficult to do. Day 1, by definition, is a change in trend and most people do not believe it. For me the best strategy is to take a small position on Day 1 and add to it only if the trend continues. One must be nimble, however,  because the trend could end at anytime. A final comparison I made was to compare SQQQ to all stocks in my watchlist of growth stocks. I find that during this period since February 25, 11 of 559 stocks, or about 2%, advanced more than SQQQ.  Good luck to finding such rare stocks in advance on Day 1! If one misses buying SQQQ on Day 1, there is a greater risk that SQQQ may trade down.

The GMI is 0 and I remain largely on the sidelines. If we get a good bounce I will transfer more retirement funds out of mutual funds and into money market funds. However, my university contributions to my retirement account will continue to accumulate S&P500 mimicking mutual funds, which is dollar cost averaging. The S&P500 as a group, but not all individual stocks, will eventually recover. I still think we are at the beginning of a significant market decline. Watch to see if the 10 week average (blue dotted) declines below the 30 week average (red line). We are not there yet but QQQ has closed below the 30 week average, a very ominous sign. We are also in a daily BWR down-trend, see chart 2. But beware of the brief bear market rallies that can seduce one to go long. There is plenty of time to wade back in once the GMI turns Green.

These 13 stocks on my list of 559 promising stocks reached an all-time high, ATH, on Friday. They are ranked in descending order of the last column, close today divided by close 250 days ago. Only one of them, CCB,  is more than twice its price a year ago. The fact that 5 of them, PLMR, AXS, PGR, BRO, AJG are in the insurance business is noteworthy. As we all know, insurance costs have skyrocketed, thus growing profits for the industry. PLMR held its green line on above average volume after having a GLB  after recently releasing its earnings. During a weak market, stocks that can reach an ATH are showing incredible strength.  See PLMR’s daily chart below.

The GMI is RED and both QQQ and SPY have closed below their 10 week averages. Time for me to be in cash and/or  very risk adverse with close stops in my trading accounts. I may nibble at a stock for insurance, however, ha ha. It is so much easier to be profitable trading long when the GMI is Green and registers 5 or more.