Pivotal week coming up–Stage 3 top?

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GMI-23/9
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The current earnings report season is supporting this market while rising interest rates weigh it down. What happens after earnings season is over in a few weeks? Sell in May? The GMI2 is at 3 (of 8), indicating that only 3 of my very short term indicators are positive. A weak close of the QQQ on Monday could turn the QQQ short term trend count down after only 3 days of a new short term up-trend. I know that I timidly went to 100% cash early without waiting for the indexes’ 30 week averages to turn down. Was I wrong to exit? The jury is still out….

This weekly chart shows that the SPY is sitting right on its still rising 30 week average (red solid line) but below its 10 week average (blue dotted line). A close back below the solid red line would indicate to me considerable technical weakness and that a possible Stage 3 top is forming. Note the 4 week average (red dotted line) is below the 30 week and 10 week averages. Compare this to the pattern from last September through January, when the 4wk>10wk>30wk average, the pattern of a sustained up-trend (component #5 in GMI2) when holding stocks or index ETFs was likely to be profitable. When that pattern comes back I will be comfortable getting back into the market in my university pension and my trading accounts. (No, I never get in at the bottom, only after I think one is in  place—the fate of a trend follower.)

 

Rising rates will determine this market

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GMI-25/9
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Behind the movement of the market is the move to higher short term interest rates being engineered by the Fed. This chart shows the recent steep weekly BWR decline (see glossary) in short term treasury bonds, indicating rising rates.

The QQQ remains between short term support and resistance (daily chart).The fact that the 50 (green dotted) and 30 day (red line) averages are declining and the QQQ is just below its upper declining 15.2 daily Bollinger Band suggests to me there may be more short term weakness. I remain in cash until the market reveals its intentions.

The GMI remains Red.

In cash and on the sidelines

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GMI-21/9
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I have always told you that I would let you know when I have sold out my trading accounts and/or exited the mutual funds in my university pension. On Friday, I decided to move all of my university pension accounts into money market funds. I had written here that I had gone to cash in my trading accounts weeks ago. My rare decision to also exit in my very conservative pension accounts stemmed from my unwillingness to watch them erode further when I have only a few years until I will rely on them to support my retirement. I would rather sit out this market and risk missing a 10-15% gain than to ride the market down that amount or more.

Why am I concerned?  The tightening Fed and a resulting recession, a possible trade war, the weak technicals, and a large group of new investors who have never witnessed a bear market decline. The next bear market will cause many boomers to sell out (probably panic at the bottom) along with the millennials new to speculation.

The dirty little secret is that if a lot of people decide to sell their “safe” index mutual funds and ETFs at the same time, the redemptions will likely cause an avalanche of selling concentrated in the component stocks in the indexes. Instead of having individuals selling their portfolios containing a relatively small number of stocks, as occurred in the old days, there will be  selling across all of the index components. The market always finds a way to surprise and inflict the most pain. Could this be the way that the explosion of investors seeking safety in index derivatives will be punished?

Meanwhile the GMI remains at 0 (of 6) and I remain peacefully on the sidelines. I know once I exit I have to make a future decision when to reinvest. However, as I see it, if I get out now and the market declines, as long as I can get back in near or below the level I exited, I come out ahead. I do not need to get back in at the bottom! And it really feels good now to get away from the stress induced by the markets these days…..