General Market Index (GMI) table

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.

A number of you have asked me about  inverse index ETFs so you could short the market. Below is a table that my co-instructor, David, built for the undergraduates enrolled in our stock market class. The table includes leveraged ETFs, which attempt to move 2-3 times the underlying index. Leveraged ETFs can be dangerous. It is important to read up on how they work and to monitor holdings quite carefully. The table also contains some ETFs that trade long or short with the price of gold. There is also a whole new class of light leveraged ETFs, not in the table,  which you can learn about here.

I will  be presenting  a 3 hour workshop for the AAII  DC Metro Chapter in Virginia in February. It is open to the public. While there is a small charge, the money raised goes to cover the expenses for the venue and to support AAII and my substance abuse research center at the university, both good causes. My co-instructor, David, and I take no compensation for the presentation. A notice about the workshop appears here. For those of you who want to learn more about my approach and to ask questions, here is our chance to meet. Just click here to learn more or go to:  http://www.aaiidcmetro.com/

The GMI remains at 0 (of 6) but the very sensitive GMI-2 has climbed to 3 (of 6). If the market indexes remain in a down-trend and they become short term over bought and begin to weaken, I might buy a leveraged inverse index ETF.  It is important to always trade with the market’s trend. The T2108 is now at 14, and no, I did not have the courage (foolishness?) to buy a bullish index ETF when T2108 was below 10!

If the QQQ (103.77) could close back above all of these 12 weekly exponential moving averages, around 108.40, I might suspect a new up-trend. For now, I am looking for the proverbial “dead cat bounce.”

The SPY looks even weaker than QQQ and remains in a BWR down-trend: