General Market Index (GMI) table

The futures are indicating a large bounce in the market  on Tuesday, at least at the open. With the GMI at 0 (of 6) it is way too early to determine if this bear has died or is just hibernating for  a brief time. We will go over things at my AAII workshop in Virginia next Saturday. You can register here.

I thought I should show you that the GMMA charts I use to monitor the market indexes and individual stocks can also be used to time entry and exit from  mutual funds. Below are the charts for the highly acclaimed mutual finds: Fidelity Contrafund (FCNTX) and Bill Miller’s Legg Mason Opportunity Trust (LGOAX, Class A). Note the strong RWB up-trends in 2014 and early 2105. It should be clear that  one could have exited these funds when their RWB up-trends dissipated.  While I exit my university pension mutual funds during down-trends, I always continue new contributions as they decline. Unlike individual stocks, large mutual funds are likely to rebound when the market turns.

The GMI remains at 0.

It took me a long time to understand the wisdom of Nicolas Darvas and William O’Neil’s advice to always trade in synch with the overall market’s trend. I learned the hard way that the same buy set-ups and rules that worked in a rising market failed repeatedly in a declining market. That is why I go short or retreat to the sidelines when my indicators, summarized in the General Market Index (GMI), lead me to issue a Sell signal. The last Sell signal occurred on December 10, 2015. Since then I have been mainly in cash. I find it very difficult to stay in and  trade on the short side, and leave that strategy to younger people with greater ability to handle the risks and losses from shorting.

I decided it was time to assess once again whether following the most recent GMI signal was an effective strategy. This table leads me to conclude that it was. As William O’Neil has taught, most (about 70-80%) stocks follow the trend of the general market averages. During the period since the December GMI Sell signal, between 78%-92% of the stocks in the three ETFs I follow most closely declined through last Friday. Because many of the GMI components are based on the action of the QQQ, it is not surprising to me that the QQQ and its component stocks performed the worst since the GMI Sell signal; the QQQ declined -13.5% and 92% of its component stocks declined, 60% fell by 10% or more, since the day of the GMI Sell signal. But all three index ETFs have declined since then and the overwhelming majority of their component stocks have also declined.

I know the media pundits say one cannot time the market, but the GMI has gotten me out of the major market declines since 2000 and back in during the recovery. I never worry about missing the market’s eventual recovery. If I get back in lower or even equal to  where I exited, I did well enough and avoided a lot of mental anguish…

Speaking of the GMI, it remains at a 0 (of 6) and I remain in cash.

My AAII workshop is February 20, register here.

IBD sees renewed up-trend. MY GMI and QQQ short term trend indicators are still pointing to a down-trend. For me, this rise remains a “dead cat bounce” until more of my indicators turn positive. A lot of technical resistance is just above current levels. By the way, I drew the lower horizontal line in this chart months before QQQ found support there in January. We likely will see at least a re-test of January’s lows.

The SPY continues to look quite weak, in a BWR down-trend.

The GMI remains at 0 (of 6) and on a Sell signal since December 10th.