World markets are topping– can the U.S. be far behind?

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During my 50 years of investing/trading I have learned that when my account grows suddenly very quickly and when many people tell me they are making money in the market (I see this now in tweets and chat rooms), the market often rests or tops. I sense we are at a time like this and I am holding on only for the end of the quarter mutual fund window dressing period to be over before I reduce my holdings. Too many speculative stocks, especially recent IPOs, are quickly doubling  (IQ, HUYA are examples). I was just mildly concerned, until I did the following analysis.

I have created a watchlist of 38 country market index ETFs across the world. I decided to look at them this weekend. I sorted them by whether each closed above its rising 30 week moving average. In the past, anytime the SPY closed below a declining 30 week average I went to cash and was minimally impacted by the ensuing bear markets of 2000 and 2008. I was very surprised and concerned to find that only 6 of the 38 (16%) markets  passed this test: The U.S. was the strongest (SPY), along with Qatar (QAT), United Kingdom (EWU), France (EWQ), Israel (EIS), and Ireland (EIRL). The remaining 84% failed my test. Some looked particularly weak to me: Russia (RUSL), Mexico (EWW), Italy (EWI), Thailand (THD), Turkey (TUR), South Korea (EWY), South Africa (EZA), Singapore (EWS), Brazil (EWZ), India (IFN). But Canada (EWC), Germany (EWG) and China (FXI) may also be topping.

Check out Turkey as an extreme example of a Stage IV down-trend. (solid red line= 30 week average)

And Germany, which may be topping.

And China

Compared with the U.S. (A close of the SPY back below its 30 week average would get me into 100% cash.)

With the U.S. now raising costs (by tariffs) for a lot of imported goods, it looks to me like the rest of the world may be heading for a recession, or worse. How long can the U.S. market diverge?

The GMI remains strong at 6 (of 6) and Green–for now.

 

 

On verge of end of quarter window dressing

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I suspect any weakness this week will set up a strong rebound by the end of June as we reach the end of quarter mutual fund window dressing period. Watch for the mutual funds to gobble up the strongest stocks so they look brilliant when their quarterly reports are sent to their customers. Meanwhile, the GMI remains at 6 (of 6) and Green.


3 Recent GLB stocks: $ENVA $GDOT $TSG

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As my readers know, I like to buy stocks that have broken out to an all-time high, after they have rested for at least 3 months. I draw a green line at the peak price not surpassed for at least 3 months and wait for a close above the green line, the green line break-out (GLB). Below are three recent GLB stocks that have re-tested their green line and appear to be holding up. All three have doubled over the past year, another important sign I look for. Stocks that have doubled often go on to double again.  I also look for above average volume on the day of the break-out. I like to buy such stocks on the day of the break-out or afterwards when they consolidate or bounce off of support or give a green dot signal. I never hold a GLB stock that closes back below the green line but will buy it back if it retakes it. Some of my best gains have come from stocks that have shaken me out for a small loss and then produced another buy signal. The table to the right of this post provides a list of some recent GLB stocks. Below are 3 recent ones. I could not resist showing GDOT, the Green Dot Corporation, in view of my useful green dot signal on the charts (no real relation to GDOT, though).

My general market index (GMI) remains on a Green signal and is at 6 (of 6). I always trade consistent with the general market’s trend. I therefore am wading back into this market on the long side. I even hold $TQQQ again.

 

$QQQ making another attempt to break out of channel

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This daily chart of the QQQ shows it is heading back up to resistance. Note the daily 15.2 Bollinger bands are heading towards each other and forming a pinch. The QQQ will likely break big, in either direction. The recent green dot signal is a possible sign it will move up. Friday was the 18 day of the current QQQ short term up-trend.

The GMI remains Green and registers 6 (of 6).

 

 

Green line breakout (GLB) explained; GMI remains Green

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I have been writing for some time about the value of the green line break-out, GLB, for identifying strong stocks breaking to all-time highs. Almost every growth stock guru I have valued talks about buying stocks after they have advanced, formed a base and then break out. The idea is to not be a pioneer—one does not want to be the only one interested in a stock. The deep pocketed institutions need to be showing buying interest, evidenced by up days with above average volume. I therefore try to find very strong CAN SLIM type stocks that have rested by forming at least a 3 month base and that then break-out to all time highs, preferably with increased trading volume.

I begin by looking at a monthly chart for each stock that hit a new all time high recently and draw a green horizontal line at the highest price reached at any month, that has not been surpassed for at least 3 months. In other words, I want a stock that reached an all-time high and has then rested for at least three months. When a stock moves through the green line or is above its last green line I become interested. I only buy stocks that are trading above their last green line tops. Stocks that form a multi-month (or multi-year) base at an all time high, especially recent IPOs, often go on to large gains after they break out. (The great Jesse Livermore made a similar observation.)

While it may seem strange, I also like the stock to have already doubled from its lowest price over the past year. This attribute helps, but is not always required, especially for IPOs. The great Nicolas Darvas alerted me to the idea that a stock that has recently doubled is likely to double again. As a psychologist, I have learned that the best predictor of a person’s future behavior is his/her past behavior. The same can apply to stocks.

Why do I buy stocks at all-time highs? Because there are no buyers who bought at higher levels, had a loss, and are waiting to sell out if they can get even. On the other hand, a stock that has advanced to an all time high, rested or declined a little to form a green line top (a base),  and then overcomes any overhead supply or resistance to break through to a new all time high (GLB, see blog glossary), is showing real technical strength.

When I speak publicly to audiences of investors I often begin by asking them to raise their hands if they buy stocks at new yearly highs. Typically, fewer than 10% say they do. I then tell them that I only buy stocks at all-time highs! By the end of the semester my undergraduate students have all embraced this strategy.

To show you the evidence that GLB’s can work, I am providing below a set of examples using weekly charts. I find that weekly charts are preferable for viewing trends and for keeping me from being shaken out of strong stocks. (I have been told that the great William O’Neil preferred weekly charts.)

Of course, not all GLBs work out. One can never know in advance if a GLB will lead to a significant advance. It does help if the stock showed above average volume at the break-out. I have a strict rule to sell a stock immediately if it comes back below its green line. If I buy because of a GLB, I must get out immediately if the signal fails. It is folly to hang on if the primary reason for buying fails! No hesitation or remorse, because I believe that each loss brings me to the next gain. In some of the examples below there was a GLB failure and a subsequent successful GLB. I find buying back a stock that I exited, after it shows a new buy signal, can be very profitable. It makes sense to buy back a stock that I have evaluated and researched and not to abandon it just because my initial timing failed. (There must be no ego in trading–I accept and study my mistakes.)

Because there have recently been more than 200 stocks hitting yearly highs each day, I have reinitiated the GLB Tracker list to the right to this page. This is a list of stocks that had a GLB in the past week that I will monitor. The date in the table is Friday and not necessarily the day of the GLB. I keep this list as an indicator of how likely recent initially successful GLBs are continuing to rise, not to serve as a buy list. Stocks on the GLB Tracker list need to be researched and evaluated for possible purchase and are not automatic buys. Moreover, I do not have to buy on the exact day of the GLB. The examples below clearly show that if a GLB stock is followed by a few weeks of advance there are many new opportunities to hop on (perhaps at the 4 or 10 week moving averages), as long as I set reasonable sell stops to protect my capital. (Setting stops and exiting is based on one’s personal tolerance for risk and cannot be rigidly defined for everybody, so don’t ask me how to do this.) Study these examples:

 

One more observation–if one is fortunate enough to hop on a successful GLB stock and pyramid one’s position, it might be a good strategy to stay aboard until it closes below its rising 30 week average (solid red line in charts). It takes patience and discipline; that is how fortunes can be made….

The GMI remains at 6 (of 6) and on a Green signal.