Friday was the 27th day of the current QQQQ short term up-trend. There were 10 new highs and 6 new lows in my universe of 4.000 stocks on Friday. Three of the ten new highs were on the IBD100 lists from today’s edition: STAR, HANS and JJNF. Since the first day of the QQQQ uptrend (by my definition) on 3/18, the QQQQ has climbed 13%, the Ultra long QQQQ ETF by 28%, and the SPY by 8%. During this same period, 84% of the stocks in the Nasdaq 100 Index (measured by the ETF, QQQQ) have advanced, with one third advancing 20% or more. The key to successful trading on the long side is to have the relevant index in an up-trend.
I just completed the best 2 week period in a year. I own a lot of the stocks listed to the right, which are having terrific runs. The GMI registered 5 for the first time since August, 2008, before the start of the major market decline. My Successful 10 day New High Index turned positive. There were finally enough stocks that hit a new high 10 days ago that have closed higher than they did 10 days ago.
Stocks on the 52 week new high lists that are also at or near all time highs is where I find potential rockets. Nicolas Darvas made a fortune trading such stocks. IBD100 stocks near all time highs include: GMCR, NFLX, MNRO, QSII, VLGEA, AZO, SNDA, NTES, ALGT. TNDM. TSYS, HGG and ORLY are also very strong, but are not yet on my IBD100 lists.
While most of the world looks for bargain stocks at new lows, I seek rockets heading to the moon. The greatest winning stocks are those heading up to ever higher levels. Think of how many times that YHOO or CSCO or MSFT hit all time new highs as they multiplied their prices many times during their great bull runs. If you want to hop a rocket to the moon, it better be pointing up and gaining altitude.
A lot of stocks are beginning to look good. However, there were only 6 new highs and 8 new lows in my universe of 4,000 stocks on Friday. Two of the 6 new highs are stocks on the IBD100 list, CPSI and TNDM. TNDM is at an all-time high and both of these stocks came public within the past 8 years, a prime criterion of past winning stocks, according to IBD founder William O’Neil. I scanned my universe and found 105 stocks that are within 10% of their 52 week highs and that have promising technicals. Among these stocks that are on my IBD100 lists from the past year and that also have last quarterly earnings up 50% or more are: AIPC, GMCR, ALGT, QSII, SXL, JJSF, NFLX and PNRA. I own some of these stocks…
The GMI remains at 4 and the GMI-R is at 7. The IBD Mutual Fund Index is above its 50 day average, indicating to me that growth mutual funds are starting to make money. When these fund managers can make money buying growth stocks, so can I. The Worden T 2108 is now at 84%, heading towards overbought territory, but not a concern to me, given that the market is snapping back from very over-sold readings. Both the QQQQ and SPY have closed above their 10 week averages for several weeks, a key sign of technical strength. While still in longer term down-trends, when these ETF’s are above their 10 week averages, I have usually been able to make money buying stocks.
Everyone wants to know if the bottom of this bear market is finally in place. The truth is that only liars and lucky people can really call a bear market bottom close to its occurrence. I noticed years ago that the pundits on TV usually felt comfortable calling a new bull market about six months after the actual bottom.
The true trend follower rides the current trend until his/her indicators suggest a new trend has begun. But all trends are not equal. Within a longer term down-trend there are short term up-trends. Currently, we have had a daily up-trend within a weekly and monthly down-trend. Day traders who monitor trends by the minute or hourly, for example, can trade numerous up and down trends within the longer term trend.
Thus, each person needs to determine his trading time interval when trying to trade trends. And one can trade different pots of money using different time trends. So I will not commit my university pension money to the long side of the market when the weekly trend is down. I stay in cash during such periods. But I may trade with my IRA funds during a daily up-trend that is occurring withing a weekly down-trend. However, I have had more success trading consistent with the weekly trend and tend to stay mainly in cash even in my IRA during a weekly down-trend. It is hard to resist buying some recovering stocks during a rally like we have just had, even though my longer term trends are still down.
It’s is great that Jon Stewart informed the world last week that the media pundits at CNBC failed to provide accurate information about the impending financial crisis. But by using technical analysis, I warned my readers last June what the charts were telling me and transferred my pension money out of mutual funds to money market funds:
“Look at this weekly chart of Bank of America (red line= 30week average; click on chart to enlarge). Other bank stocks with similar charts include : WB, UBS, STI, and DB. When major bank stocks are in a free-fall, can the rest of the market be far behind?” (Posted on June 8, 2008)
The media pundits and the financial advisers are self-serving when they try to convince us that we need their wise counsel. I say that one can rely on the market itself to alert us to danger. I use the TC2007 charting program to analyze the market trend and post my conclusions on this blog. I know a lot of you have used my blog to protect yourselves….